Buying a car can be exciting, but what’s the best way to pay for your new set of wheels? Well, there’s no right answer, but here’s a rundown of the most popular ways to buy a car.
Got money in a personal savings account? You could always use the funds to buy a car.
On the plus side, you won’t need to worry about monthly repayments since you’re not taking out any credit. What’s more, since you own the car outright, you can sell it whenever you want.
However, if you spend all of your savings on a car purchase, you won’t have emergency cash to hand should you need it. And, since a car’s value goes down over time, you might not get back what you paid for it.
Consider your finances carefully before buying a car this way.
2. Personal loan
The next way to buy a car is by applying for a personal loan. You can use the sum of money you borrow to pay for the car and then repay the loan in monthly instalments.
Again, you’ll own the car because you can pay for it right away. You’ll also know exactly how much your repayments are each month, which can help you stick to a budget.
That said, just be sure you can afford to take out a loan. If you can’t afford your repayments, you may end up in debt, which would affect your credit rating.
3. Credit card
Another way to buy a car is using a credit card. Not all dealerships allow this, though, so you’ll need to check in advance.
An advantage of paying by credit card is that you’re protected by the Consumer Credit Act. So, if something goes wrong with the purchase, you can often get your money back.
On the downside, though, your credit limit may not be high enough to buy a car. And, if you only repay the minimum each month, it could take a long time to clear the balance and cost you a significant amount in interest.
If paying by credit card is an option for you, consider a 0% credit card. You won’t pay any interest on the balance for a set period of time, meaning that if you clear off the card within the 0% period, you’ll only pay back what you spent.
4. Personal lease
Think of a personal lease like renting a flat. You pay a deposit, then you pay a monthly fee for a set period of time. At the end of the lease, you simply hand the car back.
The upside? You can often get flexible payment terms. This can make personal leasing an attractive way to buy a car.
However, you never own the car, and the dealer might set certain rules you need to follow. For example, you might need to agree to only drive a certain number of miles. If you then go over the limit, you could face additional charges.
5. Personal contract purchase (PCP)
PCP is one of the most popular ways to buy a car. Basically, you pay a deposit and a certain number of repayments, and you can hand the car back once the term ends. However, it’s not the same as a lease because you have the option to buy the car or part-exchange it for a similar car.
The monthly payments might be lower than a personal loan, but you won’t own the car unless you buy it at the end of the term. And sometimes, the interest rates work out more expensive than with personal loans.
6. Hire purchase (HP)
The final way to buy a car is through a hire purchase agreement. As with leasing and PCP, you pay a deposit and then a set number of monthly instalments.
Once you make the final payment, though, you own the car, which is an advantage for some buyers. However, if you miss any payments, the car can be repossessed and you could damage your credit rating.
The best way to buy a car
The best way to buy a car comes down to personal preference. Whichever method you choose, though, just be sure you can afford the financial commitment. And, even if you can afford to purchase a car, just remember you need to pay for other essentials like car insurance and an annual MOT.
Finally, if you decide to apply for credit, consider checking your credit rating first to see if you’re likely to be approved. Rejected applications can damage your credit score. If you’re unsure, get financial advice before making any new financial commitments.