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How do you finance buying a new car

How do you finance buying a new car

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If your clutch is clattering and your bodywork has seen better days, it may be time to think about buying a new car. Great idea, but motors don’t come cheap. Your car is probably the second biggest expense you’ll ever make, after buying a house. Oh, and having kids – hmm, make that the third biggest expense! So how do you finance buying a new car?

Plunder your Savings

That may sound reckless, but with interest rates at an all time low, how hard is your money really working for you stuck in the bank? If the alternative is some kind of Hire Purchase then you may be better off buying the car from your savings, and paying yourself back – minus the interest. Clearing out your emergency slush fund probably isn’t wise, you never know when the washing machine will blow up, or the cooker will die. But if you can afford to raid your account to finance a car and still leave a comfortable buffer in the bank, this could be a good option for you. Even if you can’t stump up the whole amount, you may be able to muster a hefty deposit, which will keep overall borrowing costs down.

Credit Card Know-How

What?! Have you seen the interest rates on credit cards?! As a long term finance plan this is an expensive and unwise option. But, if, following the discussion on savings above, you know you have sufficient funds to buy on your card and then pay it off IN FULL the following month, you could be onto a winner. Most purchases on your credit card are automatically accorded credit card purchase protection. This can offer financial assistance if your new car is damaged, lost or stolen within the first few months following the purchase, usually up to 90 days. Okay, so your insurance does that too, but credit card purchase protection may also pay out in the event that your supplier goes bust before you actually take possession of the car, or if it goes badly wrong within this initial 90 day period.

Personal Loan

We don’t all have savings accounts on tap, so a personal loan could be the next best option for financing your new vehicle. Provided your credit rating is okay and you can prove a steady income you may be able to secure sufficient finance for a new car. Shop around for the best deal, and be sure that the loan is not secured against your home, or you risk losing it in the event that you fail to keep up with repayments.

Hire Purchase

This is where you borrow money to buy your car and pay it back in instalments, usually over a period of 1-5 years. It often requires a deposit of around 10% or more. Deals on brand new cars can be very attractive. The loans are generally arranged by the car dealer, and are normally secured against the car – this means that although the car is yours to use, you don’t own it until that last instalment has been made. This can be a good choice for those looking to spread the cost over a few years.

Personal Contract

This is a variation on a Hire Purchase arrangement. You don’t buy the car outright. Instead, based on an agreed forecast of annual mileage over the term of the deal, you pay the projected difference between the current sale price, and the price of resale back to the dealer at the end of the term – effectively paying for the depreciation during the time you us it. Plus a bit. When the term, usually 1-3 years, is over you can simply hand the car back, trade in and start again, or pay the resale price and keep the car. This type of deal keeps monthly instalments down, but does mean you have to find a lump sum at the end of the deal if you want to keep it, and costs can be affected by the mileage and condition of the car at the end of the term.

Leasing Arrangements

Not just for corporate bods, leasing is an increasingly popular option for private car owners. You pay a monthly figure for the use of a car that includes all servicing and maintenance. You never own the vehicle, and are usually limited to an agreed maximum mileage per year.

Car finance options are some of the most diverse and flexible around, but it pays to shop around for deals as there is significant competition in the market. Keep an eye on APR (Annual Percentage Rates) on any finance interest you sign up to, and be wary of signing up to cover that promises payouts in the event your car is written-off while still under finance – this can be expensive, and the protection it provides can be limited. Always read the small print.

Using your own funds will always be the cheapest way to buy a car, but finance is not a dirty word provided you don’t overstretch yourself and can meet your monthly repayments. So start browsing and select your dream car today. And then work out how much you can afford and find a slightly different model that you can afford!

LenderLoan Amount
over 48 months
Representative APR%Cost 
£7,5007.8% APR Representative£181.46 per monthApply
£7,5005.8% APR Representative£174.94 per monthApply
£7,5005.8% APR Representative£174.94 per monthApply






About Cally Worden

About Cally Worden

Seasoned freelance writer Cally Worden lives with her family and dog in a quiet corner of rural France. A love of the outdoors, and a fascination with her children's ability to view life with fresh eyes provide the inspiration for much of her work. Cally writes regularly for various websites and UK print publications on subjects as diverse as parenting, whatsapp plus,travel, lifestyle, and business, and anything that makes her smile.

Website: Cally Worden

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