We’re all used to paying out bills every month. Just as soon as your wage lands in your bank account it seems to be back out into somebody else’s pocket. It’s the “modern way”.
But is it the right to pay out monthly when you’re buying a car? And if you decide to pay for your car in installments, what are your best options?
That’s the topic of today’s discussion. Grab a cuppa, prepare a plate of Hob Nobs and let’s talk about Monthly Car Finance.
Should You Pay Monthly?
To be honest, there aren’t many other alternatives to monthly deals these days. New cars tend to be more expensive than they were in decades past and saving for them will take a while. You don’t always have the luxury of time.
You could take a gander at the Used market, of course, which might turn up a few affordable bargains but these options are becoming fewer, especially if you want modern conveniences like Android Auto or Apple Carplay.
The Simplest Option
If you can buy with cash this is certainly the cheapest and simplest option. There won’t be any interest payments to inflate the price over time and you’ll drive away with a car immediately. While you’ve been saving up for your car, your savings will have earned you a little interest too.
But there’s a catch if you’re working to improve your Credit Score.
What Catch?
It turns out that paying out regular monthly installments on finance actually improves your credit score. It might seem counter-intuitive: surely being debt free show’s you’re reliable with money? Not so.
Credit Agencies rely on your credit history to assess your risk. If you don’t have as much history to your name they get cautious and your score takes a hit. Likewise, if you currently have a debt that they can assess, and if you’re paying it off without any trouble, they use this as justification to improve your score.
So if you’re looking at another big purchase like a mortgage having a monthly car finance deal could actually help.
The Advantages of Monthly Car Finance.
Having set monthly payments allows you to budget around your car.
If you know how much you earn and you’ve arranged your car payments to fit in with this, you always know where you are. And the beauty of almost all Monthly Car Finance arrangements is that the direct debit you pay always remains fixed.
There are also certain monthly plans that make buying or leasing new cars more affordable, as you’re not paying for the full cost of the vehicle. A car with a big sticker price might actually fit with your finances better if you pay for it monthly.
You can also find 0% APR options, too. That means you pay no fees or interest on the Finance – you only pay for the car.
There are plenty of good reasons to pay monthly, whether you’re buying used or new.
But what kinds of deals are out there?
Your Choices of Car Finance Deal.
There are three main types of Monthly Car Finance: Hire Purchase, PCP and Lease.
Hire Purchase.
Hire Purchase is the most common choice, and the one a dealership will present you with first. This one is simple: put down a deposit, make a payment every month, drive away with a car. Once you’ve completed your repayments, the car is yours.
Until you’ve paid off your finance, however, the car is technically still owned by the dealership or lender. That means that if you default on any payments they can take the car from you. Repayments are also a little more per month than the other choices below.
PCP.
Personal Contract Purchase, or PCP, is an increasingly popular alternative to Hire Purchase. It works mostly the same way: pay a deposit, pay monthly, drive off. But there’s a lot more to it than that.
First up, your Monthly payments are a lot lower, as you’re not paying the full cost of the car in those monthly chunks. Instead, the Dealership or Lender calculates the value of the car at the end of the contract and sets that cost aside. This is called a Balloon Payment. What this essentially means is that you’re only paying for the depreciation of the car in installments.
If you want to keep the car at the end of your arrangement, however, the Balloon Payment comes back into play.
You’ll be given three options at the end of your contract: pay the Balloon Payment and buy the car outright, upgrade to another vehicle or hand the car back.
If you hand the car back, you get no refund. If you want to buy the car, you could be facing a lump sum of many £thousands.
What most people do is simply upgrade, just as you do with your phone.
Leasing.
Leasing is very similar to a PCP except you have no options at the end: you must give the car back. You get the same advantage of low monthly payments and many leasing companies bundle in roadside assistance, free servicing and other perks – but you never own the car.
Secure in the knowledge that they can sell your car on, Leasing companies often offer even better monthly deals than you’d find with a PCP, making a Lease by far the most affordable Monthly deal you’re likely to find.
Just be aware that you never end up with a car that you can sell on or use as collateral for your next vehicle.
Sol long as you’re happy with paying for your car just like you do your phone, leasing is one of the most affordable ways to put yourself into a new car. The biggest advantage of that, of course, is that it may be a car you didn’t think you could afford.
So what is your favourite form of Car Finance? Whatever tickles your fancy, give our team a call or visit ChooseMyCar.com and see how much money we could save you on your next car.
Until next time, stay safe on the road.
