Buying a car is a big purchase. It’s not one that anybody should jump into lightly, and requires a lot of thought. Whether you’re stuck trying to figure out what car to buy, what brand you like best, or what is the most functional for your family, you can almost guarantee that affordability will come into play. It might be at the top of your list or it may not be an issue at all. But for many of us, it’s a key factor.
No matter what car you buy, it’s going to be expensive. Your budget is there for a reason and very few of us can afford to go over it. Whether you’re purchasing a car on finance or outright, you’re going to have to let go of a large sum of money and for many, that thought alone is enough to put them off buying a car. But it shouldn’t be – especially if you need a car.
If you’re nervous about purchasing a car, it might be time to look at finance options. In a recent survey, 56 percent of people said: If I had to buy a car next month, I would have to pay for it via a car finance deal because I do not have the funds to pay for it outright. So you’re not alone in thinking finance is the right way forward.
There are many ways to finance a car, but you need to find something that works for you. So today, take a look at the options and then ask yourself ‘how can you finance a car in a way that works best for you?’
Hire purchase (HP)
A hire purchase is a great finance option if you don’t drive your car too much and intend on keeping it for a very long time. If you want to have a car for 10+ years, but you can’t afford to buy one outright, this could be the ideal finance option for you.
A hire purchase agreement ideally starts with a deposit of some sort. This can be as little as a few hundred pounds or it could be your old car – even if it will go directly into the scrap pile. Note that you don’t always need to have a deposit. If you have a good credit rating, you can still get a car on hire purchase. If you don’t have a deposit or a good credit rating, it will be more difficult to get a car on hire purchase and you’ll find yourself paying a premium for the car – but it is still doable. The bottom line is, don’t let anything put you off at this stage.
The next stage is receiving details on what your monthly payments will be. Worked out dependant on how expensive the car is, and the duration of your financial plan, this will tell you how much you will repay each month. This is the number you really need to pay attention to. If £350 each month is too much for you to keep paying over three or four years, don’t enter into the agreement. Don’t count on your financial situation improving in order to pay this finance agreement. Get a car that’s more affordable.
Once you have entered into the agreement, you’ll pay a monthly fee. Once the term is over – typically three or four years, you will own the car outright. This part is key. The car is yours. No more payments.
Personal Contract Purchase (PCP)
A PCP is slightly different in comparison to a hire purchase. It all begins the same – make sure you can afford that monthly repayment figure! But at the end of the term, once your agreement is over – you will not own the car. That’s because a PCP has what’s known as a ‘balloon’ payment at the end of its term. Typically this figure is around £5,000-£10,000 and in order to own the car, you will have to pay this figure.
People who enter into a PCP agreement will typically drive a lot and switch cars often. Commuters are often best using a PCP, due to the mileage they put on their car. Sometimes it’s not worth owning it for more than a few years as the cost to keep the car in a driveable condition becomes too expensive. So, the car gets traded in for a newer model. The balloon payment is never paid and the user will trade their car in for an upgrade (usually because cars have advanced not because it is a financial upgrade).
Personal loans
You can also get a personal car for your loan. This works like any other loan. You borrow money from the bank and you pay for the car outright. This means you own your car and potentially get a better finance deal than what you would if you borrowed from the car dealership.
Looking for a new car or car finance?
If you’re looking for car finance deals or even finance on cars if you have bad credit, contact the ChooseMyCar team. As car finance specialists, we understand that it’s not always possible to have the perfect credit score, whether you’ve not taken out credit before, or have experienced credit problems in the past. Bad credit doesn’t have to mean you can’t buy a car.
