Buying a car is an exciting time for anyone – whether it’s your first car or you’ve bought plenty before! But have you ever wondered what the different options are for financing your car and which is the best for you?
If so, you’ve come to the right place as we’ve broken down the pros and cons of each option below.
Buying in cash
Buying a car outright is the cheapest option as you won’t be hit with APR rates, the annual percentage rate of the cost of borrowing. However, it is also the most inconvenient. For example, most people will struggle to buy an expensive car in one lump sum (especially with living costs on the rise!). So, you might not be able to afford the car you have your heart set on if you’re wanting to go down the cash purchase route.
One way to get around this is buying a cheaper car to avoid the price tag that comes with a finance deal. However, just be aware that if you’re planning to buy a used car outright, you may end up paying more for it due to increased demand.
Car loans
Using a loan to buy a car allows you to pay for the car in full, repaying the loan in smaller monthly increments. By using a loan to buy a car, you’ll also own the car. As such, you can sell your vehicle at any time, rather than being tied into a lengthy contract.
This is great if you decide that you’d like a newer model or simply want to buy a car that better suits your needs, however, you should ensure you have the means to pay off the loan if you sell your car, as you will still need to pay off the loan.
Car financing
Car financing deals have become increasingly popular for people that want a new car but can’t afford to pay for it in one go. Although a practical option that is offered at most dealerships, car financing does have its downsides.
For example, if you choose to buy a car on finance, you don’t have full ownership of the vehicle until you’ve made your final payment. As a result, if your car is no longer fit for purpose or you’re simply tired of it, you might be waiting a while before you can get a new one! Although, you can return the car back to the dealer after paying over 50% of the loan, but this will leave you without a vehicle which could prove difficult.
Hire purchase
A hire purchase scheme involves paying a small deposit outright, followed by several fixed monthly payments (normally between 1-5 years). At the end of the deal your payments will amount to you owning the vehicle.
Although this method allows you to own the car at the end, if you don’t keep up your payments, your car might be repossessed. This will also be a more expensive option than buying the car outright due to the interest rates on the contract.
PCP deals
Personal car leasing (PCP) essentially means you’ll finance a smaller amount of the vehicles value for fixed monthly payments. This is a great option if you’re not interested in owning the car and simply want a new a car every few years, as PCPs allow you to hand the car back after you have paid half of the value of the car. Alternatively, if you wanted to keep the car, after you have paid over 50% you can pay for the rest of the value and take full ownership. It’s worth bearing in mind that you will need to ensure your car is free from damage and within the mileage allowance if you want to hand the care back, otherwise you might be stung with hefty fees! You’re also unlikely to be considered if you have a bad credit history.
Yet ultimately, which option you pick is down to you and your unique circumstances. Whether you want complete ownership or simply want the latest car, there’s sure to be an option out there that works for you.
