Male and female with two young children packing up red car.

Buying a car: finance made easy

Buying a car can be exciting, but it can be daunting too. As well as picking a model that suits your needs and budget, you need to figure out the best way to fund your new set of wheels.

First things first: consider the total cost

Running a car isn't cheap. Before you start shopping, there are a few things you need to consider and costs to factor into your overall budget. Here's what we recommend:

  • When working out how much you can spend on a car, think about your current outgoings, like rent/mortgage, phone bills, memberships and so on
  • Certain models are notoriously costly to insure, especially if you're a newly-qualified driver, so do plenty of research beforehand
  • As well as insurance, other running costs to bear in mind are road tax, servicing and maintenance and fuel
  • Don't blow your entire budget – always leave some spare to cover yourself if your tyre blows and needs to be replaced, for instance
  • If you've got your eye on a shiny new motor, it could depreciate by hundreds (even thousands) of pounds in the first year. So, you could save a lot of cash opting for a model that's at least a year old.

Ways to buy your car

So, you've worked out your budget, factoring in all possible costs. With a certain car in mind, you need to work out how you're going to pay for it.

Buy it outright

Paying for your car in a lump sum means you own it outright the moment you hand over the cash. You won't have to worry about monthly payments or the interest that comes with them, and you can easily sell it on when the time comes.

However, not all dealers accept cash and if they do, they might not be as willing to budge on the selling price because a large chunk of their income comes from finance deals.

Hire purchase (HP)

With HP, you put down a deposit (usually 10%) followed by fixed repayments until you've paid the car off – at which point, you fully own the car. Picking HP may mean you're able to drive a car you might not be able to afford otherwise.

The potential cons of HP are you only own the car when the final payment is made – you can't sell or modify it in the meantime. Also, monthly costs tend to be higher compared to other types of finance.

Personal contract purchase (PCP)

PCP is similar to HP agreements in that you don't own the car and have to make monthly payments. The difference is when the payment term's up, you can make a final 'balloon payment' to buy and keep the car, or swap it for another model and take out another contract.

There tends to be lower monthly costs with PCP deals, and you can benefit from driving a new car every few years. But you'll need to make a larger final payment to own the car and often, your annual mileage will be capped.

Personal loan

You can take out one of two loans to purchase your car. An unsecured loan means you don't have to offer any collateral to receive the money, meaning less risk but higher interest rates. With a secured loan, you use your car as collateral if you can't make repayments, but interest payments will be less.

Taking out a loan means you won't have to pay a deposit and being able to pay with cash means you can offset what you're borrowing. But you'll need to secure the loan before buying the car, which can be a difficult process, plus you're likely to be penalised if you have a poor credit score.

Bearing in mind these options and top tips will make sure when you pick up the keys, they're the keys to the very best car for you.

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