If you’re in the market for a new or used car, you have many options on which is the best way to fund your next car purchase. It can be tempting to go straight for a car on finance to help spread the cost but there are some limitations to this. For example, there is certain criteria you need to meet before you can get a car on finance. Alternatively, cash may be the most cost-effective way to get a car but new and used cars can cost thousands of pounds and it can take a long time to save up this kind of money. So, with this in mind, what is the cheapest way to buy a car in the UK?
Buying a car with cash
For many people, cash is king. Cash can be the most straightforward way to get a car and, in many cases, can be the cheapest option. When you buy with cash, you have the freedom to get the car from anywhere you like, this can include private sellers, auctions, or car dealers. It can be easiest to haggle a better price when you pay with cash too. There’s no need to pay interest on your car either as no borrowing is involved. However, even used cars can costs thousands of pounds to buy outright and you may not want to empty your rainy-day fund to buy a car. If not, you could consider using some of your savings towards a deposit for cars on finance UK instead.
If you have a good credit score, personal loan can be one of the cheapest forms of car finance. A personal loan is when you borrow a set amount from a lender, usually a bank or building society and have the money deposited into your bank account. You can then use your loan just like a cash buyer and get the car you want. You’ll then agree to make monthly payments, usually over 1-5 years with added interest. Personal loans can offer some of the lowest interest rates around which means you don’t have to pay more than you need to in additional charges. However, the best rates are reserved for those with good credit, and you can struggle to obtain a personal loan if you’ve made late repayments in the past or have a low credit score.
Hire Purchase car finance
If you’re looking for a straightforward car finance deal, hire purchase can be the best option for you. Within Hire Purchase deals, you spread the cost of your chosen car into monthly payments over a number of years with added interest. Hire Purchase is a form of secured loan which means the lender owns the car until the final payment has been made. If you’ve made all your payments on time and in full and paid the final option to purchase fee, the car is yours and you will become the legal owner of the vehicle. HP finance can be suitable for people with bad credit as the lender can use the car as collateral if you fail to meet your repayment schedule. If you’re unsure whether you would be suited to this type of finance, you can use a car finance eligibility checker UK to see where you fall on the credit scale and shop cars within your budget. HP deals don’t tend to be the cheapest in terms of monthly payments but can be one of the simplest forms of finance.
Leasing a car
If you want to essentially hire a car over a set period and don’t want to own it at the end, a lease plan could be the perfect choice for you. Throughout a lease agreement you pay fixed monthly payments to use the car over a number of years and once the lease has ended, you simply hand the car back. You don’t need to worry about depreciation throughout the agreement as you’ll never own the car and can save on paying for serving and maintenance costs as they’re usually included.
Personal Contract Purchase (PCP)
A personal contract purchase or PCP deal is similar to hire purchase but instead of covering the cost of the vehicle, you pay off the depreciation. This can help to keep monthly payments much lower but there will be more to pay at the end of the deal. If you want to keep the car, you will need to pay the large balloon payment at the end of the deal. This can usually be thousands of pounds to pay and not many people can afford to keep the car. If not, you can also choose to hand the car back to the dealer once all payment has been made. Or, if you want to get another car on PCP, you can use the equity towards a newer, better car.