• Henry Naylor


Updated: Jun 20, 2019

Aside from taking out a mortgage for a property, buying a car is likely to be the most significant financial commitment you'll make.

Nowadays, the internet gives us access to a bewildering array of makes and models for sale, all from the comfort of our home.

No more waiting a week to buy the local newspaper as soon as it hits the shops or trudging around local car sites in the rain.

Just load up the browser on your computer or mobile device, and you instantly have access to over 500,000 cars for sale in the UK. [Source: Auto Trader]

The downside, of course, is everyone has access to the same information, and you need to work fast if you want to secure the perfect vehicle. This is why it's essential to have funding in place a soon as you start searching, if not before.

Get your car funding in place with LOW APRs from 5.9%


3 ways to purchase a new car


Use the money in a bank account, or savings account to buy a car outright. You’ll have a wide choice, but only the vehicles that can be bought for your budget.

Car Finance

Arrange car finance in advance, and you have all the freedom to choose a car from virtually any dealer in the UK. Your buying power is the same as cash, but you'll often be able to increase your budget and have a more extensive choice of cars to choose from.

Dealer Finance

The majority of dealers offer car finance, but your choice is limited to the vehicles each dealer has for sale. It's worth noting that zero interest finance means the dealer is absorbing the interest so they'll be less likely to negotiate the buying price. Many dealers favour higher interest rate finance because they receive a kickback (rebate) from the finance company.

Ultimately though, the primary choice is whether you want to pay cash or arrange car finance.

To help you make the right decision, we've listed 6 reasons why finance might be better than cash depending on your circumstances.

#01 Buy a newer car

Unless you have the cash in the bank to buy your ideal vehicle without having to worry about any of the downsides, it makes sense to consider financing.

Securing a great finance deal could mean you can buy brand new or purchase a more recent model with less mileage, better features and more time to relax before you get to those costly major service intervals.

#02 Paying by cash doesn't always get you a better deal

Regardless of whether you pay by cash or finance, the most important thing for a dealer is the margin.

When a dealer buys a car, it starts depreciating in value. Every day a vehicle sits on a forecourt it's costing the dealer money.

If the dealer pays for their vehicles using stocking finance, then interest starts to accrue. If the dealer pays by cash, then the value of the money begins eroding fast, taking the dealers profit margin along with it.

There is no real reason for a dealer to slash the price of a car and wipe out his margin to sell a car for cash when a finance company can make a payment in full often on the same day.

So as long as you have your finance in place when you start to look for a new car, you'll have just as much negotiating power as if you were paying by cash.

#03 Overcome the debilitating effects of instant depreciation

According to figures published by the AA, a brand new car will lose 40% of its value on average by the end of the first year — and as much as 20% of the cost is lost as soon a car is driven off the forecourt.

Used cars more than a year old fair slightly better, but depreciation is not something you should take lightly.

Let's say you have £20,000 in cash to buy a car. You buy the car, drive it home, and you've instantly lost up to £4,000.

Whereas if you keep your savings in the bank and buy a car with finance, the effects of depreciation flow out throughout the loan period. For many people, this is much more appealing.

#04 Buy a better make or model

While many people buy cars based on practicalities such as tax costs, fuel consumption, servicing costs and insurance, there are occasions when we'd dearly like to treat ourselves.

Financing your car and keeping your savings as a fallback to protect against the costs of ownership can open up a world of possibilities such as buying

a convertible;

  • a top of the range model with all the extras;

  • a model with a bigger engine and sportier performance; or

  • a prestige brand such as a BMW, Mercedes Benz or Porsche.

Buy a better make or model with LOW RATE car finance


05# Keep your cash safe for a rainy day

Despite the joys and freedom of owning a car, there are times when unexpected events take a financial toll.

In addition to the prospect of a major mechanical issue such as a cambelt, engine or gearbox failure, you shouldn't underestimate the real cost of being involved in an accident.

According to a study commissioned by Churchill Insurance last year, 384,000 cars were written off in 2017, which equates to more than 1000 vehicles a day or one car every 90 seconds.

Most importantly, insurers pay what they asses the market value of the car to be at the time of the accident, not when you made the purchase.

If you've used your hard earned savings to buy a car for cash, the sum you receive back from an insurance claim will be much less.

But if you've taken out car finance and included the all-important 'gap' insurance, your finance agreement will be settled in full, you'll still have all your cash in the bank, and you'll be free to go again.

#06 Use your cash to take advantage of life's little luxuries

Keep your savings in the bank, and you're free to take advantage of life's luxuries without resorting to using potentially expensive credit cards or short term panic loans.

Credit card interest, in particular, is usually a lot higher than car finance interest so managing your money the smart way could leave you free to take advantage of

  • a luxury cruise you've always promised yourself,

  • a last minute holiday offer that's too good to miss, or

  • a perfect new set of furniture or kitchen that appears in the sale.

Is car finance right for everyone?

Car finance is a sensible option for most people as long as you are over 18 years old, have an income and are not currently personally bankrupt.

There are lots of options, and it's easy to compare the most competitive rates in the market to secure the best deal.

Can I get car finance with bad credit?

Many lenders focus on your credit future, not your credit past. As long as you can demonstrate an ability to afford the repayments there are plenty of lenders who will provide car finance if you have bad credit.

Bad credit, CCJs? No problem


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