Once you have taken a test drive in your shiny new motor, it can be tempting to throw caution to wind and not worry too much about how you’re going to pay for it. Unfortunately, this is all too common for car owners across the UK. Before you sign on any dotted line, you should know how you aim to pay for the vehicle, whether you decide to hand over cash or take out car finance.

If you’re in the market for your next ‘new-to-you’ vehicle, take a look at the different ways to pay for a car.

How to pay for a car

  1. Cash
    As long as you’d have enough savings left over to cover other major purchases or unexpected costs in the future, paying cash is a great way to buy a car. Paying cash means that you own the vehicle straight away. If you get into financial difficulties, you have the option to sell the vehicle and keep the cash from the sale. If you have a car finance agreement such as a leasing or hire purchase, this isn’t possible.

    If you don’t have quite enough savings to buy the car outright, you could use them to give you the biggest deposit possible, so you end up spending less on loan interest.

    Before you pay cash, think about your future finances. Are you planning any other large purchases over the next few years, such as buying a house? If so, you may want to save some cash and consider financing the vehicle.

  2. Hire Purchase
    This option is increasingly popular for the purchase of new cars. Typically, you will put down a deposit of 10%, and then make fixed monthly payments over an agreed time period. This means that you won’t own the vehicle until the last payment has been made. However, this route does make purchasing a vehicle more manageable. Even those motorists with poor credit can get accepted for car financing.

    Hire purchase agreements are convenient to arrange and can be competitive for newer vehicles. There is also a fixed interest rate and monthly payments with no annual mileage conditions or fines for wear and tear.

  3. Personal Contract Purchase (PCP)
    This type of car finance deal is similar to a hire purchase agreement, but you usually make lower monthly payments. With a personal contract purchase, you have an ‘optional final payment’ at the end of the car finance plan, often referred to as the ‘balloon payment.’ You are able to defer some of the cost of the car to be paid at the end of the plan, making the monthly payments cheaper.

    Instead of getting a loan for the total cost of the car, you get a loan for the difference between its sale price and its predicted value at the end of the hire agreement.

    In a PCP, you decide how much of a deposit you want to make and estimate your annual mileage and the length of the contract. Typically, this type of car finance plan is between 3 and 5 years.

    At the end of the term, you can:

    • Trade the car in and start over again;
    • Hand the car back to the dealer and pay nothing; or
    • Pay a final payment (balloon payment) and keep the vehicle.

  4. Conditional Sale

    A conditional sale is similar to a hire purchase agreement, but you pay higher monthly payments and don’t have a fee to pay at the end of the term. Like a hire purchase, you do not own the car until the car finance plan has been paid in full. Typically, you put down 10% of the car’s value as a deposit, and repayment terms last between 2 and 6 years, making this option ideal for those who want to keep the car at the end of the plan without paying a final fee.

  5. Credit Cards

    Using a credit card to buy your new car can be a cost-effective way of getting a new set of wheels that allows you to buy the car outright on the day. To buy all or a portion of a car with a credit card, you must first ask the dealer if they accept credit card payments as many do not. If they do, they could charge a hefty processing fee that you need to consider.

    It is best to use a credit card that has a 0% interest offer to buy the car outright and then split the repayments over the interest-free period so that the balance is cleared by the time you’re due to be charged interest.

    Putting your new car on a credit card gives you repayment flexibility as long as you meet the minimum payment every month. However, if you only repay the minimum repayment every month, it may take much longer to repay your borrowing amount.

Getting a car on finance? Here’s what to look out for

Before you take out a car on finance, here are a few things to look out for:

• Make sure you can afford the monthly payment – not just now, but for the whole term of the loan.
• Ask the lender what will happen if you struggle to pay one month, and what options you have if you couldn’t afford to pay.
• Compare the total cost of borrowing, including all charges over the full term of the loan.
• Compare interest rates from different lenders. Remember that a larger deposit usually means you have a lower interest rate.
• Consider working with car credit specialists to land the right finance plan.

Find out if you can get car finance

At My Car Credit, we aim to help you through every step of the car finance process to make the process as hassle-free as possible.
For an instant quote, and to see what car finance plan you can be eligible for, please use our simple car finance calculator.

We are open 7 days a week, and our website is full of helpful tips, guidelines and answers to any questions you have.
For more information, call us on 01246 458 810 or email us at enquiries@mycarcredit.co.uk.

 

Representative APR 23.9%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score

Representative Example

Borrowing £7,500 at a representative APR of 23.9%, annual interest rate (fixed) 23.88%, 47 monthly payments of £234.69 followed by 1 payment of £244.69 (incl. estimated £10 option to purchase fee), total cost of credit is £3,775.12, total amount payable is £11,275.12.

My Car Credit is a credit broker and not a lender.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!