Is Buying a Car on Finance a Good Idea?
Buying your next car can be a stressful time. Other than the fact that there are so many decisions to be made and boring steps to overcome, the financial pressure of such a big purchase can be a lot to handle. 😱 You’re probably wondering about the best way possible to buy a car because no one is keen on wasting money through inefficient processes. So is the best way to buy your next car through finance, or is it not a good idea? Let’s find out! 🔍
3 Reasons to Buy a Car on Finance
You Won’t Have a Huge Amount of Money to Pay in One Go
Realistically, most people won’t be able to afford placing a big sum of money into a new car. Even if you do have the savings needed, paying cash for a car means digging into money that you don’t actually have to use. Wait, what?
Well, when you buy a car on finance, you’re able to spread out the cost of such an expensive purchase over several years, which makes it so much more realistic for your finances. You won’t have to worry about any emergency spending in the next few months, as you’ll still have the funds to cover anything unexpected. You’ll also be able to keep saving for things like a new flat or house. Car finance is a way of simply paying something each month, but still buying your dream car, so why not go ahead and utilise it?
You Can Improve Your Credit Score
In the UK, credit scores can mean two things for consumers: a great advantage, and an utter nightmare. A few poor decisions and missed payments can mean a long time of bad credit ratings, which will inevitably prevent you from a lot of things. You could miss out on good interest rates for loans, and even not be able to take out a loan at all.
Taking out a car loan is a way of improving your credit score by making and sticking to regular payments. For every prompt payment, you can show that you’re a good loan candidate to lenders. An excellent credit score means that lenders will be much more likely to approve any loans you will apply for in the future, snd even offer you lower interest rates.
You’ll Be Able to Get a Better Car
Car finance is a way of stretching out your budget over time. Not only is this considered good financial practice, but it also means that you’ll be able to afford a more expensive car than if you were to pay in cash. A better car also means more money when you sell it once you’ve paid the loan off!
What Is the Best Way to Buy a Car on Finance?
We may be a little biased, but we think it’s fair to say the best way to buy a car on finance is through Carmoola. We’ll get you a car loan deal in a few minutes - no going through hours of paperwork and boring steps. Everything is done through our interactive app, and we have loads of tools like a budget calculator so that you can make sure you’re getting the right loan for your situation.
So, yeah, if you want an easy car finance experience, Carmoola is definitely the right way to go. On another note, because we believe that knowledge is power, we’re going to be going over the different ways of buying a car on finance. Let’s dive right in.
Car Finance Through Hire Purchase
A Hire Purchase agreement usually entails paying a deposit, which is often between 10 and 20% of the car’s value (although you can also get zero deposit deals too.) You’ll also be agreeing to repay the rest of the loan balance every month, plus interest, in instalments until the end of the loan term. Once the very last payment has been made, you’ll own your car.
However, with Hire Purchase, it’s important to remember that if you ever miss a payment, your lender will be allowed to reclaim your car. The advantage though is that deposits are usually quite low with this type of loan, so you won’t have to worry about pulling out a big sum of money at the start of the loan. It’s generally one of the easiest types of car finance to be approved for, and repayment terms are quite flexible, plus you’ll get fixed interest rates and own your car as soon as it’s paid for.
Car Finance through a Personal Contract Purchase
A PCP is similar to an HP but you will find the monthly repayments are lower. This is because you also have to make a final "balloon" payment at the end of the agreement in order to own the car. Or if you prefer you can return the car to the dealer or use it as a deposit against a future PCP deal. But before you decide which to do, it's a good idea to check how much the car is worth, just in care its value is now less than the amount to pay, and you are for some reason in negative equity.
Car Finance Through Leasing (Personal Contract Hire)
A lease agreement means that you’re leasing a car and handing it back to your car dealer at the end of the term. You’ll be paying a fixed monthly instalment in exchange for using the car, which usually includes maintenance and servicing. Personal contract hire can sometimes cost more than other types of agreements, but you’ll be able to benefit from the flexibility of being able to change providers throughout the course of your contract. Bonus points for the fact of not having to pay a deposit!
Car Finance Through a Personal Loan
You can take out a personal loan at a bank, finance provider, or building society. You can use this loan for many different purposes, as approved by your lender, one of which can be purchasing a car. If you’re interested in a personal loan, it’s important that you properly assess how much you want to borrow and how long, investigating how much this will cost you in interest rates.
You might end up finding a more expensive loan than if you went with a Hire Purchase agreement to purchase your car. However, personal loans will be quickly approved if you have a good credit score and you’ll be able to choose exactly how much you want to take out.
What’s the Long Term Financial Cost of a Car?
The idea of buying your next car is definitely exciting. And here at Carmoola we share that excitement with you! However, it’s easy to forget that it is also a huge financial responsibility. In fact, that’s most likely the very reason that you’ll want to take out a car loan - to spread out its cost. You’ll also have to think about the additional costs that gravitate around a car, not only the purchase price.
First things first, we strongly recommend that you carefully assess your budget beforehand. We have a car finance budget tool to help you do so, which will allow you to figure out if you have enough income to cover the monthly loan repayments. Once you’ve calculated that, you’ll have to take into account other spendings, like:
- Initial start-up costs like vehicle duty or road tax, and registration fees and delivery (for new cars)
- Your car’s maintenance and service
- Insurance premiums
- Fuel costs (which seem to be constantly rising)
Once you’ve added everything up, if you find that it’s within your budget, go for it! If it’s not quite right, consider reworking things, or going for a less expensive car. Why? Well, because missing payments on your car loan will affect your credit score immediately. When that happens, you’ll unfortunately possibly need seven years of perfect loan repayments to fix your damaged score. That’s why our advice would be to only go for car finance when you’re absolutely sure you can afford it.
The Bottom Line
Aaaaah, buying a new car! What a whirlwind of emotions! The exciting, but daunting feel of committing to such a big purchase. You love it or hate it. And the quality of the experience all depends on how well informed you were while going through the process. That’s why here at Carmoola, we work hard every day to provide you with the best, most detailed information and advice you can get.
We have a blog, full to the brim with resources to help you make the most of car finance. We also have an app that will actually (subject to status of course) get you your car finance deal in a few very easy steps! We’d love to hear your feedback and help you with anything you need - let’s get you your dream car! Contact us today, or download our app. Cheers 😎