Cars that are cheaper to buy on finance than with cash

Cash has historically been the best way to get a good deal on a new car, but our research reveals you can now save up to £10,247 by buying on finance...

Finance is cheaper than cash

I remember my father walking into our local Ford showroom in the 1980s with a briefcase full of cash and leaving as the proud owner of a new, metallic bronze 3.0-litre Capri. Car buying has changed a lot since then, though. Personal contract purchase (PCP) finance has become the most popular way to get into a new car, with 75% of new cars bought using it last year. 

Buying on a PCP deal lets you buy a more expensive car than traditional forms of finance, such as hire purchase, because it offers lower monthly payments. And in some cases there’s an even more compelling reason to choose this type of finance. Thanks to manufacturer-backed incentives, such as dealer deposit contributions and zero per cent finance, it can be cheaper than buying with cash – even when you take into account the final ‘balloon’ payment at the end of a PCP deal. 

“Buying on finance works out cheaper when the car maker’s deposit contribution is greater than the maximum discount offered for a cash purchase – as indicated by our Target Price saving – and the finance interest rate is either zero or low enough not to cancel out that saving,” explains Pat Hoy, head of our Target Price mystery shopping team. 

“There are two reasons why some cars are cheaper on finance. First, it’s a good way for car makers to offer a discount without making it blatantly obvious that they’re working to boost sales of a given model. Second, car makers like to get people to buy using one of their PCP deals because they can look forward to repeat business when finance agreements end. 

“Consumers should work out the total amount payable for a car, both as a cash deal and on finance, and compare the two before buying to ensure they pay the lowest price.” 

To help with your new car research, we’ve looked at all the incentives currently offered on new cars by manufacturers, to pinpoint the models for which finance is the best option. Although 83% of nearly 6000 cars scrutinised by our Target Price experts were cheaper to buy using cash, 14% of them cost less if you took out a finance package instead.

Only cars that have scored at least three stars in What Car?’s rigorous road tests are included in our round-up. All savings are based on a four-year PCP deal with a 15% deposit and a limit of 10,000 miles per year. 

If you do opt to buy on finance, it’s worth checking the small print to make sure you can pay it off early without incurring penalties that could outweigh your saving. 

Biggest finance savings on small cars

Ford Fiesta - save £522 >>

Ford Fiesta cornering front three quarters

Model 1.1 75 Trend 3dr
List price £16,135
Cash Target Price £15,341
Total finance cost £14,819

The Fiesta is great to drive, smart inside and well kitted out. All versions but the speedy ST cost between £345 and £522 less on finance – extra cash you could use to add automatic emergency braking, a vital safety feature. 

Kia Rio - save £491 >>

Kia Rio

Model 1.25 2
List price £15,195
Cash Target Price £14,299
Total finance cost £13,808 

The Rio certainly has price on its side, even before discounts. The biggest saving is on the 1.25 petrol; it’s fine for town driving, but we’d take the smaller finance saving of £420 on the peppy 1.0 turbo petrol if regular longer trips are planned. 

Mazda 2 - save £500 >>

Mazda 2 2020 front cornering RHD

Model 1.5 Skyactiv-G 95 SE-L Nav 
List price £16,835 
Cash Target Price £16,544
Total finance cost £16,044 

The Mazda 2 has a pretty plush interior with a good infotainment system. It’s frugal, too, thanks to its mild hybrid technology. All versions cost £500 less on finance. SE-L Nav with the 89bhp engine is our preferred combination. 

Peugeot 108 - save £883 >>

Peugeot 108 1.0 72 Active 2-Tronic

Model 1.0 72 Allure 3dr
List price £13,930
Cash Target Price £11,722
Total finance cost £10,839

The 108 is pricier than its sister, the Citroën C1, before discount, but has similarly low running costs and comes with plenty of standard equipment. All 108s are cheaper on finance, with mid-range Allure trim offering the biggest saving. 

Toyota Yaris - save £875 >>

Toyota Yaris 1.5 Hybrid Icon CVT

Model 1.5 VVVT-i Icon
List price £16,580
Cash Target Price £15,528
Total finance cost £14,653

The Yaris is well equipped and has a comfortable ride. What’s more, if you pick our preferred 1.5-litre petrol engine instead of the 1.0-litre, it also has a decent turn of pace. The £875 finance saving is applicable on all petrol versions; the saving when you buy the pricier Yaris Hybrid on finance is £750.