The principals behind buying a new car are relatively straight forward. Settle on a budget, go to a car dealer and then buy a car; simple.
However, very few people are fortunate enough to be in a position to afford a car outright and therefore need to use a car credit facility to secure the funds. And because this is normally a long-term financial commitment, there are a few points worth considering; ensuring that no more is being paid than is necessary.
There are numerous ways to fund those new wheels and, as is the case when buying anything, it certainly pays to shops around by exploring all the available options. Many car dealers, for example, will offer a finance plan at the point of sale and it is in their interest to do so, as they will often pcp finance calculator receive commission on any car loan they sell. But as convenient as this may be for any prospective car buyer, the typical interest rate from a car dealership can be as much as 3% more than the cheapest personal loan. And as a car loan can take several years to repay, even a few percent can equate to thousands of pounds in the long run.
Indeed, it can often work out better to have the finances in place before heading to a car dealership. If a car salesperson thinks they can seal a deal on the spot, then they are more likely to offer a favourable deal on the car, and the overall bargaining power of the buyer will be greatly improved.
Another factor worth considering when deciding which car finance plan to choose is depreciation, as some new cars lose almost half their value in the first year and up to two thirds of the value can be lost within three years.
For this reason, some people choose a personal contract purchase (PCP) plan, which is similar to the more traditional hire-purchase agreement. This is a conditional sale agreement, whereby a set contract-term is agreed and then equal monthly payments are made for the duration. At the end of the contract period, a lump sum can be paid to finalise full ownership, or the car can be handed back to the dealer, thus partly negating the effects of the depreciation trap.
But for some people, this may be needlessly complicated when all they want is a no-frills car to get them to work every day. And this is why it may make more sense to buy a used car.
Not only is this a much cheaper way of getting on the road, but used cars are more suited to loans than new cars because a lower amount of money is borrowed, meaning it should be possible to arrange an unsecured loan, which will protect the car – and any other property – from repossession.