The Best Way to Buy a Car

Car Subscription Service

A car subscription is similar to a long-term rental, with a range of terms from one month through to a year. With a subscription service, you’ll pay a fixed monthly rate and often additional extras like road tax, maintenance and breakdown cover are included in your fee. More often than not, all you’ll be required to pay for is your fuel and insurance.

The terms are typically flexible and if you’re someone who likes to change their car regularly, it’s an ideal model that gives you versatility. There’s a wide range of models to choose from and the rates are affordable, making it accessible for most people.

Loan

You can fund your car purchase with a personal loan, which can be taken out via your bank or building society. As with any debt, it’s important to do your research into interest rates and what you can comfortably afford each month, along with how much you’ll need to get the type of car you want, such as whether you are buying new or used. Personal loans are usually easy to get approved, providing you have a good credit score, and you have more control over how much you take out for your vehicle.

Personal Contract Purchase

Personal Contract Purchase (PCP) is a great option if you’re someone who likes changing out their vehicle every few years. With this option, your loan covers the difference between the value of the car new and its value at the end of the hire agreement.

For example, you may sign up for PCP for three years, with a car that costs £10,000. The finance company may predict the car will be worth £5,000 at the end of your contract term. You will pay a deposit (usually 10%) and then owe £9,000 – you will effectively be taking out a loan for that amount.

However, since the car will only be worth £5,000 at the end of the agreement, you only need to pay £4,000 over three years, although you’ll pay interest on the entire £9,000 as part of your monthly payments. When your agreement comes to an end, you can either pay the final £5,000 to keep the car or give the car back.

PCP monthly payments are typically lower than HP or a personal loan, and there’s a lower initial deposit. There’s also no worry about the depreciation of the car at the end of your agreement, since you have the option to give it back.

Personal Contract Hire (Leasing)

Personal Contract Hire (PCH) is like renting a property – you pay a fixed monthly fee over a set period of time. You’ll also pay a deposit, which might be three to six times the monthly payment. Then, when the agreement comes to an end, you hand the vehicle back. Providing the car is still in good condition, and you haven’t gone over your agreed mileage, there shouldn’t be any additional money to pay.

The flexible payment terms and no hassle regarding the car depreciating in value make PCH a popular option. It’s also a convenient and simple process – simply pay monthly and then give the car back when you’re done.

Hire Purchase

Hire Purchase (HP) involves paying a deposit of usually 10-20%, and then repaying the balance plus interest every month until the term comes to an end. When the final payment has been made, you’ll own the car outright.

The deposit for this method of buying a car is usually quite low, and it’s certainly one of the easier forms of finance to be approved for. There are often flexible repayment terms to suit your budget and dealers offer competitive interest rates. You’ll also have the added benefit of owning the car when the final monthly instalment has been made.

Cash

If you have savings put aside, or you can save up the cash needed relatively quickly, buying a car with cash means you’ll own your vehicle immediately and you won’t owe any money to anyone. It also gives you the option to sell the car at a later date, if you so choose.  

The Best Way?

As to which is the best way to buy a car? Well it all depends on your situation and your requirements. For a lot of people PCP and PCH are a fantastic way to have a new car every few years and keep the general cost of motoring down. For those who like the change more often subscription could work. It is very important to research and try to align your financial and motoring requirements with the best choice for you.