6 different ways to buy a new car in the UK

It can be overwhelming to buy a new car. It can be overwhelming, especially with all the terminology surrounding different financing options. We’re here to help you get through all the confusion.

Here’s a guide to the various ways that you can purchase a car. In simple terms.

You can then choose the best option for you.

1. Hire Purchase (HP)

The Hire Purchase is similar to a mortgage.

The deposit is usually a down payment and the remaining balance is repaid over a period of time in instalments.

These payments will also include interest.

The car becomes yours at the end of the loan term.

Advantages:

• You will own the car at the end.
• There are no mileage restrictions.
• Flexible loan terms are possible

Disadvantages:

• If you fail to make a payment, your car may be taken away.
• Without express permission, you can’t sell the car or modify it.
• Your credit score could be affected if you miss a payment.

2. Personal Contract Purchase (PCP).

If you are interested in changing your car every two to three years, a Personal Contract Purchase (PCP), could be a good choice.

The loan is not a loan to cover the entire cost of the car. The difference between the car’s new value and the car’s value at the end the agreement covers your loan.

If you’re confused, don’t worry.

1. Let’s suppose you sign up to PCP for three years. The car is priced at PS10,000, and the finance company estimates that the car will be worth PS5,000 after three years.
2. A 10% deposit of 1,000 PS is required.
3. The PS9,000 loan amount is then due.
4. You will only have to pay PS4,000 for three years, as the car is valued at PS5,000.
5. However, interest will be charged on the entire PS9,000 each month when you make your monthly payment.
6. After the loan term is over, you have two options: pay the remaining PS5,000 or keep the car. You can also hand the car back.

You will need to maintain the vehicle in good condition, and you should adhere to the agreed mileage.

Advantages:

• Monthly payments are typically lower than personal loans or hire purchases.
• Low initial deposit.
• You don’t have to worry about the car losing value, as you can simply hand it back at the end.

Disadvantages:

• The car will not be yours during the contract term.
• Personal loans can have higher interest rates than personal loans, but PCP may be more expensive.
• Extra charges may apply if you exceed the agreed mileage.

3. Personal leasing (contract hire).

A car lease is similar to renting a house or flat.

A fixed monthly fee is payable over a set period.

A deposit is usually required. It can be anywhere from three to six times your monthly payment.

You must return the car at the end of the agreement.

You don’t need to pay anything extra if the vehicle is in good condition and within the agreed mileage.

Advantages:

• Flexible payment terms.
• There is no need to be concerned about your car’s value falling.
• Simple contract – Pay monthly and return at the end.

Disadvantages:

• You are never the owner of your car.
• You have to return the vehicle in a sellable condition. If you damage it, you could be charged.
• You may need to maintain a certain mileage.

READ MORE: How to Sell Your Car Safely

4. Personal Loan for a New Car

This is when you borrow money from a lender, and agree to repay it through monthly fixed payments.

Interest will be charged on the loan. You must repay the amount borrowed and pay the interest.

You can treat the money as cash once it has been deposited into your account. This will allow you to buy your car right away.

There are a few things you need to remember before you apply for a loan.

How much money a lender will lend you could be affected by your credit score.

You could be denied for a loan if your credit score isn’t good. This can also affect your credit score.

Lenders may perform credit checks on applicants for personal loans. This could affect your credit score.

To find out how much you might end up paying, use our free personal loan calculator

Advantages:

• The car will be yours.
• Dealer demands, e.g. There are no mileage limits.
• The loan term should be adjustable.

Disadvantages:

• The value of your car could decline. It could also be less valuable than what you paid for it if it is being sold.
• Although your monthly payments may be higher than with other forms of finance such as mortgages, this all depends on the terms and cost involved.
• It may be difficult to obtain a loan if your credit score is low.

5. Buy a new car with your credit card

You can buy a new car with your credit card just as you would any other purchase.

You pay the full amount upfront and your credit card company over the next months.

While you may be required to pay interest on any outstanding balance, some companies offer 0% interest for a limited time.

You don’t have to pay interest as long as the loan is paid off in its entirety.

You should be able to decide how much you want to pay each month. You must still make the minimum monthly payment.

Some dealers won’t allow you to pay with a credit card.

Sometimes, they may limit the amount you can pay with your card or charge more.

You may be limited by credit card companies in how much you can spend on a single purchase.

However, if your credit card can be used to pay for the purchase, you are protected as a consumer.

Section 75 of Consumer Credit Act protects you with purchases between PS100 and PS30,000 if:

• Your new car has not been delivered by the company.
• The car is not up-to-standard.
• The dealer has misrepresented what they are selling.

Advantages:

• Consumer Credit Act protects you.
• You can choose to pay only the minimum monthly payment if you wish. This could end up costing you more long-term as the interest rate increases.
• Cashback and rewards may be available for your credit card.

Disadvantages:

• Some dealers may not accept credit cards.
• High interest rates are possible.
• Some people won’t have enough credit.

READ MORE: Buying a Used Car? Read this first.

6. Use your savings to buy a new car

It is tempting to save your savings for a rainy night.

If you really want to buy your car, however, it could be worth using your savings.

Advantages:

• The car will be yours immediately.
• You don’t owe any one money.
• You can sell your car at any time.

Disadvantages:

• Your car’s value could decrease as it depreciates. If you decide to sell your car within a few years, the value of the vehicle will be less than you paid initially.
• You can reduce your nest egg to cover emergencies depending on how much you save.
• Depending on how much money you have, your options for car purchase may be restricted.

READ MORE: Check MOT