How to Finance Buying a Used Car?

When looking to buy a used car there are many things to think about such as which model to choose, what size engine, what colour etc. however, before all of these can be considered it’s important to work out how the purchase will be financed.
When working out how much to spend on a new car, it’s vital to examine all the aspects including paying for petrol, repairs, MOT and servicing, insurance and tax as you need to be able to keep the car on the road as well as buy it in the first place.

We caught up with Darren at Big Motoring World for the following advice. They have a huge selection of used cars for sale so check them out.

Buying a Used Car
There are many different ways to finance buying a used car so here are a few options:

  1. Cash

By far the cheapest and easiest way to buy a car is using your own cash. That way you don’t have to pay any interest and you will own the car immediately. If you are using savings to pay for the car then make sure you have enough to cover the full cost.

  1. Personal Loan

If you don’t have enough cash to buy a car outright, then the second cheapest option would be to take out a personal loan from the bank or other financial provider. This way you can spread the cost over several years, making it more affordable. Make sure to get the best interest rate and shop around for the best deal.

  1. Hire purchase

Hire purchase is different to a loan in that you don’t own the car until you have paid the very last payment. You need to pay a deposit and then a monthly payment until the end of the term agreed. It is usually agreed directly with the dealer and can be a competitive way to pay for new cars.

  1. Personal contract purchase

This is similar to Hire Purchase but normally involves making lower monthly payments followed by the choice to own the car with a large end payment, or to hand it back, or to roll the finance over and trade the car in for a new one.

  1. Leasing

This is a way to have a car without ever owning it. You simply pay the dealer a monthly fee for the use of the car, within an agreed mileage limit. Servicing and maintenance is included so you don’t incur all the usual costs of owning a car. At the end of the agreement you give the car back.

  1. Credit card

Depending on the price of the car, using your credit card to pay for the car in full might be a good option as it will give you protection if anything goes wrong. You will have to pay back the card payments monthly and will most likely incur interest charges during the time it takes to pay it back. Some dealers don’t accept credit cards so it’s worth checking first.

  1. Peer-to-peer loans

Peer-to-peer loans are also known as social lending and enable people to borrow from each other negating the need for banks to be involved – there are specialist peer-to-peer websites available but you will normally still require a good credit rating.

  1. Part exchange

If you are part exchanging your current car then it’s worth getting a price assessment first before going to the dealership, so that you can make sure you are getting the best price possible. The more you can earn from your current car, the less you need to raise for the new one.
If you are borrowing money from anywhere, to pay for a used car, make sure you are aware of what happens if you can’t make a monthly payment for any reason, and what options you have if there is a time when you can’t afford to pay.
It’s also a good idea to look at the bigger picture and work out how much you will pay in total, including charges and interest, if you take out a finance option compared with paying in cash. It might be that a loan is better value than using your credit card or vice versa.
You also need to make sure you can afford all of the car’s running costs, potential repairs and other issues, on top of the car payments every month as an important factor in planning your finances. It’s also important to take your credit rating into account as if you have a low rating some of the credit options might not be available to you; however there are specialist credit services available for people with a low credit score so just be careful and look into all of your available options.
Whether you are buying your used car cash, via lease, or using a loan or credit card, there are many ways to finance the purchase, leaving you free to sit back and enjoy your new car.

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