Financing a New Car

Buying a car is an expensive business and finding the initial capital to purchase one can be problematic, especially if you’re young and have just entered the job market. Today I will illustrate just some ways in which this wallet emptying task can be made a little easier.

Dealer Finance

Car dealerships try and thrust finance deals under our noses whenever possible, often demanding a monthly payment as well as an initial deposit. This makes the business of buying a car a whole lot more affordable short term, getting far more people on the car market. Last year, 65% of all new cars were bought using £19.8 billion in dealer finance. Dealerships tend to offer Personal Contract Purchases (PCP’s) meaning that you’ll pay a much lower monthly sum over several years (normally three) but at the end, provided that you’ve adhered to the mileage limit, you’ll have to pay a lump sum of several thousand pounds to retain the car. Many dealerships also offer combined car insurance payments making payments more manageable. Beware though as these may not be the cheapest.

Is there a better way?

PCP ends up however being expensive, and you never really own your car, you’re renting it. You will probably find that you can get your car for cheaper if you take out a personal loan, but remember you will have to pay various arrangement and administration fees. Another option is incorporating the cost in your mortgage. Increasing your mortgage could well mean that you’re getting the funds at a far reduced rate and won’t be paying those extra few thousand pounds to ‘rent’ your car. On both these options you’d always be able to sell your car should circumstances change, making the whole business a lot more flexible.

What car?

Invest in something you will be able to afford. Don’t go to the dealership and be mesmerized by all the extras. No doubt the salesman will ask if you want leather trim, better alloys, cruise control and all sorts of other gadgets which will be difficult to resist in the heat of the moment. Remember though that a base model advertised for £15,000 can soon become £25,000 if you succumb to all these tasty offers. Also, such options are generally the profit makers and you are paying far more than you should be. They don’t generally add much second-hand value either. Consider buying a recent used car with a few thousand miles on the clock. You’ll save yourself a lot of money and won’t suffer the initial ‘drive-out-of-garage’ depreciation that a new car does.

Share This!