Buying a car - paying for your car

How to pay for your car is a big decision, and you will have several options to choose from. From paying cash, to getting a personal loan or buying a car on finance, there are many possibilities. Before you start to look at cars, work out how much you can afford to spend. This saves you time when you go online or to a dealership, as you know exactly which cars you can afford and which ones you can’t.

There are four main ways in which you can finance the purchase of a car:

Personal Contract Plan (PCP)


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PCP

Pros

Tick       Low monthly repayments

Tick      Small deposit 

Tick       Quick and easy to arrange

Tick       A choice of what to do at end of repayment term


Cons

X          Mileage and condition of car affects the costs

X          Total amount paid may be more than with hire purchase

X          Have to pay the outstanding balance to keep the car

X          You don't own the car until the final payment

PCP is a type car finance deal is similar to hire purchase and tends to result in lower monthly repayments.

You pay a deposit, usually between 10%-30% of the price of the car. If you already have a car, you can trade this in for part or all of the deposit, depending on its value.

You agree the monthly repayments, usually spread out over a term of between 3 - 5 years.

You agree the Guaranteed Minimum Future Value (GMFV) of the car, based on things like the estimated annual mileage over the term of the agreement (i.e. 3 - 5 years) and the condition of the car at the end of the agreement.

At the end of the agreed term you can either:

  • hand back the car to the dealer and pay nothing
  • trade the car in and start all over again with another PCP agreement
  • pay the GMFV price of the car and keep it


Learn more about PCP 


 

Hire purchase

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HP

Pros

Tick       Quick and easy to arrange

Tick      Small deposit 

Tick       Competitive fixed interest rates


Cons

X          You don’t own the car until the final payment

X          Tends to be more expensive for short-term agreements

Many ‘car finance’ deals offered by garages, and some offered by lenders, are hire purchase agreements. You may find it convenient to enter into a hire purchase agreement arranged by the garage, as the garage can arrange your finance while selling you the car. This saves you having to go to your bank, building society or credit union to arrange a personal loan.

The important difference between hire purchase and a personal loan is that with hire purchase, you don't own the car until you have made the last repayment. Only at that time will the owndership of the car pass to you. This means you cannot sell the car if you run into problems making your repayments.

With hire purchase you will usually have to pay a deposit of 10% of the value of the car. You then pay the rest of the value of the car in instalments, over a period of between 3 – 5 years. In this way, you are essentially hiring the car until you make your final payment, after which time you own it.

The loan is secured against the car, which is why you don’t own it until you’ve made your last payment. It is important to make sure you understand the terms and conditions of your hire purchase agreement before signing the contract.

Learn more about hire purchase

 

Personal loan


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Loan

Pros

Tick       Covers the whole cost of the car but doesn’t have to

Tick       Can get a competitive fixed interest rate if you shop around

Tick       You own the car immediately


Cons

X         There may be a wait for you to get the money

X          Your credit rating could be affected if you miss repayments

You can get a personal loan from a bank, building society or credit union as long as you have a good credit rating.

If you decide to borrow, check out our personal loan cost comparisons to see where you can get the best value loan and how long it will take you to pay it back. You can also use our loan calculator to work out the repayments on loans of different amounts. The cost of credit can vary by as much as €501.15 between different providers for a €13,000 loan over three years. Aim to pay off the loan before you expect to get rid of the car, so you are not paying the loan back after the car is gone.

Use our budget planner to work out how much money you have left over at the end of each month based on your current income and think about whether you can really afford a car loan. Try to be realistic with your repayments so that you are not leaving yourself short each month. Remember, you will also have ongoing costs for fuel, tax, insurance and servicing.

 

Cash or savings

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Cash

Pros

Tick       You avoid paying interest 

Tick       Cheapest way of paying for a car

Tick       You own the car immediately

You may decide to save up for the car. If you do, make sure you are getting the best rate on your savings by checking out our regular savings account comparison. Saving up is the cheapest option as you do not have to pay interest on a loan. Interest rates from different providers can vary depending on which savings account you choose, so make sure you shop around first and get the most from your money.

You should make sure you have enough savings left over for an emergency after you have paid for your car.

If you don’t have enough savings to buy the car outright, you could use the money towards as big a deposit as possible.


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