Should You Buy Your Next Car With Cash or Finance?
Many drivers now find themselves at a loss without a vehicle to get around. People rely on their cars more than ever and it can be hard to know which is the best way to fund your next car purchase. Buying a car can be one of the second most expensive purchases you will make in life so it’s important it’s the right choice for you. There are two main ways you can buy a car, and it’s either by paying with cash or by spreading the cost with finance.
The guide below looks at each in more details and helps you decide which is best.
Buying a car with cash.
As the saying goes, cash is king! And when it comes to buying a car, it really is the best option. Buying a car with cash is the best way to fund your next vehicle. But we agree it’s not realistic for everyone. There are many benefits to getting a car with cash. There are no restrictions to how you use the car, you’ll be the owner of the car from the start and there’s no month payments or interest to pay.
It’s the most cost-effective way to get a car but they can also be expensive. Buying with cash means you have to save up the money and make one lump sum payment for a car. The cheapest new car in the UK is around £14,000 and it could take a while for someone to save up this kind of money.
If you need a car in a hurry and don’t have the cash to hand, you could consider financing a car instead.
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Financing a car.
Car finance is a popular option for many drivers to get a car as it allows them to spread the cost. Car finance means you can pay for a car in monthly instalments over a number of years. There are a few different car finance deals to choose from but usually, it involves a lender agreeing offer you finance and give you the money to buy a car or them purchasing a car on your behalf.
You then make agreed month payments back to the lender over the term. Usually, car finance deals are set over 3-5 years. There are lots of benefits of financing a car such as getting a car on finance with no deposit, getting a newer and better car and being able to pay for it over a term that suits you.
What to consider before taking out car finance.
Buying a car with cash is straightforward and there isn’t a lot of drawbacks. However, car finance can be mor complex and there are few things you should know first.
Not everyone will get approved.
Car finance is subject to status and won’t be offered to everyone who applied. Drivers will have to meet the lenders individual criteria before they can be accepted for a finance deal. You may be refused a car loan if you can’t afford finance, your credit score is too low or you’ve no job or driving license.
You may not own the car.
Popular finance agreements such as Hire Purchase and Personal Contract Purchase are secured loans. This means the lender buys the car from the dealer on your behalf and they own the car during the agreement. At the end of a HP deal, there is a small option to purchase fee to ay and you will then take ownership of the car.
A PCP deal offers lower monthly payment throughout the agreement but leave a large balloon payment to make if you wish to keep the car. Because the lender owns the car, it also means if you miss your finance payments, the lender has the right to take the car off you.
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There can be mileage and modification limits.
Personal Contract Purchase (PCP) is one of the most popular forms of car finance. Because you won’t own the car during the agreement and many people choose to hand the car back at the end of the deal, lenders put restrictions in place.
You will have to set an agreed annual mileage and if you exceed the mileage, there will be extra charges to pay. You also can’t usually make any modifications to the vehicle or damage it in a way that goes beyond general wear and tear.
