Buying a car is not a small purchase. Whether you opt for car financing, strike a part-exchange deal at the dealership or pay for it in full with cash, your next car could be the biggest purchase you ever make in your lifetime – after your home.
With everything from running costs to maintenance and servicing to consider, securing the best deal that works for you and won’t break the back is essential.
Whether you’re new to finance or it’s time to upgrade your vehicle, here’s how to finance your next car the right way:
Purchasing a car with a cost-effective mindset
First things first. Before you stroll down to your local forecourt or contact a dealer or private seller, you need to set a clear budget. That means looking carefully at your bank statements. What are you spending each month?
By figuring out how much each of your essential payments is costing you, such as rent, mortgage, food, utility bills etc., you’ll quickly see how much extra cash you have at the end of each month. Then, you need to consider the following:
- Road tax
- Running costs
- Maintenance & repairs
From there, you need to establish whether you want to go electric or stick to a traditional internal combustion engine (ICE) vehicle, as this will have a significant impact on your fuel costs.
Do your research
Now you know how much you can afford, do your research. Check out online reviews from leading motor enthusiasts and weigh up your needs vs wants. For example, you might need a family car, but you want it to look stylish and have a decent fuel economy.
Once you’ve discovered the type of car you want, do a comparison price search. Find out the rough ballpark of how much you should expect to pay either new at the dealership or from the second-hand market. That way, you have all the information you need before coming face to face with a seller, and there’s no room for being ripped off too.
Weigh up your options
Ok, so you’ve got your budget in mind, and you may even know the car you want, but now you need to think carefully about how you are going to pay for your new vehicle. To minimise interest and other charges down low, here are 5 ways to get the most out of your next car:
Cash & Savings
If you’re in the fortunate position to pay for the entire cost of a car outright with money saved in the bank, then you’ve found the golden ticket! Paying with cash ensures a one-off payment with zero interest attached and eliminates any extra fees.
But, paying with cash does have its drawbacks:
- Can leave a significant dent on your bank balance
- May not include manufacturer warranties
- Servicing is unlikely to be included
- If something goes wrong with your car, you may be left with a large repairs bill
Perhaps the cheapest option when it comes to car finance, a personal loan allows you to make small monthly repayments that won’t leave you high and dry by the end of the month. Generally, you are expected to place a 10% deposit for your chosen vehicle before making your repayments.
While many buyers will make the mistake of paying for their new vehicle on their credit card or assume that the dealership is offering the best finance package, a personal loan will almost always offer better value.
What’s more, you can apply online from reputable lenders with little effort on your part.
Secured against the car itself, hire purchase is becoming an increasingly popular way to finance your vehicle. Typically, you put down a 10% deposit and then pay the rest of your balance off in small instalments over a fixed term.
While you can expect competitive rates for longer-term agreements, you won’t own the car until you have made your final “balloon” payment. But with the manufacturer’s warranty and servicing included, you can save yourself time and money at the garage and stay on the road for longer.
Personal Contract Plan
Similar to Hire Purchase, a Personal Contract Plan (PCP) allows you to put down a deposit and then make your small monthly repayments over a fixed term. However, this mode of finance enables you to pay the difference between the original selling price and the vehicle’s resale price at the end of your agreed term (typically 1-3 years.)
Once your PCP contract is all paid up, you can either give the car back to the seller, no strings attached. Alternatively, you can pay the resale price and keep the vehicle or use it as part payment towards a new car.
Everything has its own cost, and a personal lease is no different. You get all the perks of paying set instalments each month for a fixed period of time (usually 3 years), and you get all maintenance and servicing thrown in for the price. What’s more, you don’t have to worry about depreciation, and you’ll know exactly how much you are paying each month.
The catch? You don’t get to keep the car at the end of your agreed lease term – which is a plus for some, as it means you get to switch your vehicle more often without any extra concerns. However, a significant deposit is usually involved (at least 25%), and you need to stick to your agreed mileage limits to avoid any extra charges.
There’s hope for all
Car financing is hands down the most affordable way to purchase a car. Not only are the costs covered by your loan, but more often than not, you can be driving away in your dream vehicle on the same day your loan is approved.
But what about drivers who struggle to get approved? Or have no credit history at all?
The good news is, there is a range of reputable bad credit car finance specialists out there who look at your individual circumstances. So even if you have a CCJ (Country Court Judgement), are self-employed or have faced bankruptcy before, they will look at the bigger picture of what you can reasonably afford.
Affording your next dream car has never been more affordable. With the right car financing option at your fingertips, you’ll be behind the wheel in no time.