The network of roads in the UK is highly congested. According to recent research, there are nearly 26 million cars licensed in just England alone. This highlights the fact that for most Brits it is still a necessity to have a car despite having highly efficient public transport available.
It is a major purchase to buy a car and one that needs to be done properly. Vehicles are depreciating assets and ownership costs do not end once you have signed on the dotted line. When it comes to insurance, maintenance, and running costs, most likely it will cost you thousands of pounds per year.
So although it is important to secure a good deal on your purchase price, it is even more critical to choose something that will serve you well for many years into the future, since over the long term that will save you a lot of money. If that means having to push things out a bit farther than you thought originally when it comes to your budget on the purchase price, it can still be worth it.
The things that will help with this the most are to finance your purchase in the most cost-effective way and to minimize charges and interest that you incur. Here are some tips how to finance a new car.
1. Cash savings
If you can pay the entire price of your car using the money you have saved in the bank, that is the number one prize. When you consider how low rates are currently on saving accounts, there isn’t much to be gained from having your money sitting idle (unless you consider lending the funds through our platform or a similar one). The only thing to be cautious about is to ensure that making the purchase doesn’t eat too much into your savings buffer, and therefore put you at risk for being short on funds to cover car-related or other costs that could arise in the future.
2. Hire purchase
This option is becoming increasingly popular for purchasing new cars. You put a deposit down (normally 10 percent), and then make installment payments to pay it off over a fixed term. It is basically a secured loan against the vehicle. Competitive rates are offered, although normally just on longer-term agreements. The one drawback is that until you make the final payment you do not own the car.
3. Personal loans
Usually, the cheapest car finance option is a personal loan, as long as your credit history is solid. Many people buying a car make the mistake of using a credit card to pay for the car or assume that the finance plan that the dealer offers is the best option that is available to them. However, using a personal loan will usually offer better value and is very convenient since you can easily arrange one online without having to put in a lot of effort.
4. Personal Contract Plan
This finance method is similar to hire purchase. Basically, you pay the difference between the car’s original selling price and its resale price when you get to the end of the agreed-upon term (normally 1-3 years). It is paid in monthly installments. Once the term is over, there are a few options available to you.
First, you can just return the car to the dealer and then walk away. You also can keep the car by paying the resale price. Or you can trade in the car and get a similar arrangement on a new vehicle.
5. Personal lease
There are clear advantages to a lease agreement. Each month you pay a set installment price over a fixed time period (normally 3 years). It includes all servicing and maintenance. This means you don’t need to think about depreciation, and you will also know precisely how much of your monthly budget needs to be allocated to it. The drawback to the option is that when the lease term ends, you won’t own the car. There is also normally a significant deposit that must be made, and if you go over the agreed mileage limit you will be charged extra.