5 Ways to Buy a Car

Owning a car or other vehicle can be an essential part of your employment or lifestyle. Perhaps you need a van for work, or a car to pick the kids up from school. But not everyone can afford to pay for a vehicle in one go, so will need to consider other options.

And even if you do decide to get a car on finance, you may need to take other factors, such as your credit history and monthly disposable income, into consideration. There can be a lot to think about, so to help you get started, we’ve outlined the five most common ways to purchase a vehicle below:

1. Pay in Cash

The most straightforward option when it comes to buying a car is to pay for it outright in cash. You do need to make sure that you have enough money left in your savings account to cover any unexpected expenses that might pop up, but a cash purchase can be a great option. You’ll own the vehicle outright, and should you ever need to sell the car, you’ll get to keep all the cash from the sale.

One of the things to keep in mind with a cash purchase is your future finances. If you’re planning to make another large purchase within the next few years, such as putting a deposit down on a house, you may not want to invest all your money in a vehicle. You could instead put down a large cash deposit, and then pay the rest on finance. This may also help improve your credit score – borrowing money and making repayments on time can demonstrate to lenders that you’re able to manage your finances well, as long as your payments are made on time.

buy a car

2. Personal Loan

Taking out a personal loan is another common option for purchasing a vehicle. You can borrow the amount you need, and then spread the cost of repayment over a few years. If you have a good credit history, the interest rates should be relatively low.

If you have a less than perfect credit score, however, personal loans may not be the best choice – because they’re unsecured loans, there is no collateral involved. This means that there is more risk for the lender, and higher interest rates are often applied. The benefit of unsecured loans for the borrower is that you won’t have to worry about losing any assets, should you no longer be able to keep to the agreement.

3. Hire Purchase (HP)

A hire purchase agreement is similar to a personal loan, except the loan is secured. The cost of the loan is secured against the value of the car – it acts as your collateral. This does mean that your vehicle could be at risk of being repossessed, if you were to default on the loan.

With a hire purchase deal, you’d typically put down an initial deposit, and then make fixed monthly instalments over a few years. Once the final payment and option to purchase fee have been made, you’ll own the vehicle outright.

4. Personal Contract Purchase (PCP)

Similar to a hire purchase agreement, a PCP arrangement is a type of secured loan which allows you to spread the cost of borrowing. Unlike a HP deal though, a personal contract purchase involves paying towards the depreciation of the vehicle, not its value. You’re essentially paying the difference between the purchase price and the estimated value of the car at the end of the contract.

Once your term comes to an end, you’ll have three options. You can decide to return the car and walk away, enter into a new agreement, or make what is known as a balloon payment. This is the figure the vehicle was estimated to be worth at this point.

buying a car

5. Credit Card

If you have a low interest or 0% credit card, this can be a great way to purchase a vehicle. In terms of the latter, these credit cards are usually for a set period, known as a ‘promotional offer’ – for example, they could be interest free for 12, 24, or 32 months. This means that once the term of the promotion runs out, a higher interest rate will be applied.

When it comes to buying a car with a credit card, not all dealers will accept payment via this method, and even if they do, they could charge a large processing fee. Make sure you ask about this before committing to a contract.

The main benefit of using a credit card to buy a car is that you’ll have more flexibility when it comes to repayment. As long as you’re able to cover the minimum monthly payments, there is no set amount you have to pay back.

Want to Get a Car on Finance?

If you do decide to buy a vehicle on finance, there are a few things to keep in mind. The first thing is to make sure you can afford the monthly instalments, along with the other expenses of running a car, such as insurance and fuel. Consider your financial position throughout the duration of the loan too – will you still be able to afford the repayments later down the line? It’s sensible to speak to the lender about what would happen if you were to have trouble paying one month, and the options available to you.

Another key thing to consider is the total cost of borrowing. Lower monthly repayments won’t necessarily mean less to pay overall, especially if you’re spreading the loan out over a longer period of time. You should compare the interest rates of different lenders, and see how much of a difference a large deposit would make. Perhaps speak to a professional, and discuss the best way to move forward.

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