Decide how to pay for your car
Before you can discover the best possible car that suits both your practical purposes as well as your bank balance, you have to know exactly what your budget is. It’s important to take into account more than just the asking price of the vehicle itself, as you’ll need to have some money left over to cover the ongoing costs of ownership, including:
- Car insurance
- Road tax
- Repairs and servicing: Your car seller should make you aware of any repair work the car may need, no matter how minor. Even if no repairs are required, it’s important to bear this potential future cost in mind when budgeting.
While this isn’t a particularly pleasant part of the car purchasing process, it is entirely necessary in order to guide you towards finding a vehicle that sits suitably within your means. Once you have a well-considered budget in place, you’re ready to decide how you should pay for the car of your choice.
Cash and Savings
Making a straightforward purchase using the money that you have available is without a doubt the most cost-effective way to pay for a car. As interest levels remain low, your savings in the bank will only be earning a minimal amount. Therefore, it makes far greater financial sense to buy a car with your own money rather than borrow the required funds at a higher rate of interest.
Even if you are unable to cover the whole cost of the vehicle in cash, it’s worth utilising as much of your money as you can spare, in order to minimise the amount you need to borrow. Ultimately, the less you need to borrow, the less interest you’ll be required to pay back.
- Cost-effectiveness: No interest or other financing costs or charges to pay.
- Simplicity: One straightforward payment and the car is yours, with no future payments to consider or budget for.
- Security: By paying in cash, you own the car outright, it cannot be repossessed due to failed repayments.
- Availability: Utilising too much of your available cash and personal savings can leave you in a less comfortable position to pay monthly outgoings. Only pay in cash if you are confident that you can afford to do so in the long-term.
Taking out a personal loan
If you need to find alternative funds to cover all or part of the cost of buying a car, then taking out a personal loan with a reputable lender is a safe, manageable way to finance the deal. However, be sure to compare leading car loan options to find one that’s the most beneficial to you.
- Competitive interest rates: If you are willing to shop around, you can secure a loan for the required amount at a low, manageable interest rate. Many banks and lenders will also offer discounts if you bank with them already or utilise their other services.
- Improve your credit score: Successfully repaying a manageable car loan will demonstrate your financial trustworthiness and build your overall credit rating. This can be vital for securing future loans of a more significant nature, such as mortgages or business loans.
- Keeping cash in reserve: Buy the car upfront but spread the payment out over time, allowing you to maintain more of your personal savings.
- Higher overall cost: Depending on the length and size of your loan, you could end up paying significantly more than the car’s actual purchase value.
- Lender holds and interest in the vehicle: should you wish to sell the vehicle, the lender will appear on record as holding an interest in the vehicle on a car history report. This can only be removed once the loan is paid off in full. Buyers and dealers will want this cleared before purchasing this car from you or you using it as a part exchange.
What about leasing options?
Other financing options such as Hire Purchase (HP) or Personal Contract Purchase (PCP) can be applied to used cars but these kinds of agreements are usually made directly with car dealerships or vehicle leasing specialists, not with private sellers.
Although your payment options may be more limited when buying from an individual rather than a dealership, you are likely to secure a far better price. This is because private sellers are often motivated to make a quick sale and are almost always open to a negotiation regarding the sale price.
Leasing direct from a specialist leasing business can often keep monthly payments at very low levels, although a typical six to nine month deposit will required, as well as adhering to mileage limits and vehicle condition agreements for when you return the vehicle. It’s a highly attraction option however to having a brand new car on a very short space of time.
A word on making the agreed payment
Once you have made your decision about which of these financing options will work best for your long-term budget, the only thing left to do is pay the car’s seller. Here are some final tips and considerations you should bear in mind:
- You should ask the seller what method of payment will suit them best. Most will prefer cash due to its inherent simplicity but some may not feel comfortable handling large sums of money. Agreeing on a payment method ahead of the sale will help avoid complications or any potential awkwardness.
- If the seller insists on payment terms that seem suspicious – such as payment in advance, cheques made out to an unfamiliar name or company, a suspicious meeting location, etc – walk away from the deal. Given the wide availability of used cars online, it’s not worth risking yourself or your hard-earned cash if you think there’s something not quite right.
- Also, when buying/selling in the private space (not a dealer/leaser), always get credentials of who you are dealing with. Ask to see a copy of driving licence, and get verified address details through seeing utility bills for example.
Enjoy the ride
Once you’ve carefully considered your budget, raised the necessary funds and made the agreed payment, there’s nothing left to do other than take your latest purchase for a test drive. Good luck and enjoy.