What is the best way to buy a car?

Chris Lambert, Product Development Manager, Wednesday, 13 July 2022
Updated: Friday, 13 October 2023

Buying a new or used car should be enjoyable and exciting, but navigating the different payment options available can be tricky. There are a several steps between visiting dealerships or private sellers and picking up the keys to your new vehicle. All are equally important and should be considered to make sure you get the right car for you.

Here, we explore the different ways you can pay for your new car. We’ll cover how buying a vehicle outright differs from buying a car on finance so you can decide which method is right for you.

In this guide

Buying a car with cash

The most straightforward way of buying a new or used car is with cash. If you buy your car using cash or a cheque, you’ll immediately own the car outright.

Paying in cash will save you money compared to borrowing money using a personal loan or finance agreement. This is because, when financing a car, you’ll typically pay interest on the money you borrow. When paying in cash, you are making a one-off payment without that additional cost.

Being the car’s legal owner has several benefits, too. Firstly, it means you are free to sell it at any time should your circumstances change, or you decide you’d prefer a different vehicle. This differs from financed cars, where the individual taking out the finance agreement is typically the registered keeper, not the owner, so they can’t choose to sell it without first consulting with their finance provider.

Additionally, owning the vehicle will give you total flexibility with where and how far you drive. Leasing, for example, usually has mileage restrictions, with additional charges if you exceed your annual allowance.

Of course, paying everything upfront means you’ll need to have enough money saved in advance. Depending on the price of the car you’re hoping to buy, this can make paying with cash impractical or even impossible.

Pros of buying a car using cash

  • You will own the car outright so can sell or modify it as you want
  • You may save money compared to financing a car
  • Using cash means it’s a one-off payment.

Cons of buying a car using cash

  • Your choice of car is limited by the amount of money you have saved
  • The car’s value will depreciate over time, more so if it’s a new vehicle
  • You might not be protected if you have issues with the car.

Buying a car using a personal loan

When you use a personal loan from a bank or building society, you can borrow money to pay for the car of your choice, regardless of whether it’s a new or used car. However, you will be charged interest on top of what you’ve borrowed, which will increase the overall cost of what you pay for the car.

Most personal loans aren’t tied to the car itself. These are called ‘unsecured loans’. With unsecured loans, you’ll make monthly payments until the cost of the loan is paid back, over an agreed period of time. Some loans, however, are tied to the car itself – these are called ‘secured loans’.

Read our blog for more insights into the differences between car finance and personal loans.

The key difference between an unsecured loan and a secured loan is that your car can’t be repossessed if you don’t keep up with payments. Which is what could happen if you take out a secured loan.

Applying for personal loans can affect your credit rating, as lenders will check that you can repay the loan, often by performing a hard search on your credit file. Likewise, your credit score and history will also affect the interest rates you can get when you apply for a personal loan.

To check your credit score, you can use the following credit reference agencies:

Pros of buying a car with a personal loan

  • Personal loans can cover all of the cost of the car
  • Interest rates can be lower than using car finance
  • With an unsecured loan, you fully own the car, so you are free to sell or modify it as you want.

Cons of buying a car with a personal loan

  • Getting a personal loan is difficult if you have less-than-perfect credit
  • The loan amount will restrict your choice of cars and might not be enough to cover all running costs
  • You will be responsible for the maintenance and upkeep of the car.

Buying a car with a credit card

Using a credit card to buy a car has become less common due to the rise in popularity of car finance. Additionally, many dealerships don’t accept credit cards, so it’s best to check this before you plan on buying a car using this payment method.

You need to be aware of several things before you buy a car with a credit card, including that depending on your credit limit, you may not be able to buy the car outright just using your credit card. You may also be charged interest on the credit card balance if you don’t pay the balance in full. This would increase the overall cost of what you pay for the car.

Credit cards may be a safer option if you’re set on buying a car outright in one lump sum. Under Section 75 of the 1974 Consumer Credit Act, credit card companies assume some responsibility for purchases made under £30,000, meaning they could issue a refund if you can prove the goods or services you bought were sold under false pretences.

For example, say you purchase a used car from a private seller who claims that the vehicle is in fine working condition, but you soon find out that it has several defects or mechanical problems that render it unsafe to drive. In this instance, your credit card company may be able to provide a refund if the seller isn’t willing to.

Pros of paying for a car using a credit card

  • Some card providers offer rewards, like cashback or introductory offers
  • You have payment protection from Section 75 of the Consumer Credit Act
  • Once you have the card, you can buy a car quickly and conveniently.

Cons of paying for a car using a credit card

  • Most dealerships don’t accept credit cards
  • Your credit limit can restrict the choice of vehicles available to you
  • Interest rates can be high when introductory offers end, and not everyone qualifies for 0% interest rates.

Buying a car on finance

Buying a car on finance is a convenient way of purchasing a vehicle you may not otherwise be able to afford. Depending on your finance plan, paying in monthly instalments will either mean you own the car outright at the end of the term or let you trade it in to take out finance on your next car.

Let’s take a closer look at the different types of car finance available and compare their features, benefits, and limitations.

Conditional Sale

With a Conditional Sale (CS) finance agreement, you may need to put down a deposit before paying monthly instalments over a set period. Getting car finance without a deposit is also possible, but this depends on several factors, including your credit score and affordability.

Our finance agreements last between 36 and 60 months.

Something else to consider is that you will only own the car once you make the last payment of the agreement. Instead, you’ll be the ‘registered keeper‘, meaning you’ll be responsible for paying servicing and maintenance costs, but the finance company will be the car’s legal owner.

You will pay a fixed interest rate as part of the agreement, so your monthly payments will stay the same throughout.

This is the type of finance we offer at Moneybarn. We specialise in helping people get the cars they need, even if they have bad credit. We’ve helped thousands of people up and down the UK onto a better road ahead. For more information on this type of finance, read our guide on how Conditional Sale finance works.

Representative 30.5% APR.

Pros of buying a car on a Conditional Sale agreement

  • You’ll own the car at the end of the agreement without having to pay an extra fee
  • Keeping up with your payments can positively affect your credit score
  • There aren’t usually mileage restrictions in a CS agreement.

Cons of buying a car on a Conditional Sale agreement

  • You don’t have the option to hand the car back at the end of the agreement
  • You can’t sell or modify the vehicle until you become the legal owner
  • If you aren’t able to keep up with payments, your car may be repossessed.

Hire Purchase (HP)

A Hire Purchase agreement allows you to put down a deposit (usually 10% of the vehicle’s value) and make monthly payments for a car over a specific timeframe. You will own the car outright at the end of this period, typically 3 or 4 years.

The finance agreement is secured against the car, so if you cannot pay, the car may be repossessed. Your monthly payments will typically include a fixed interest rate, so the amount you pay each month won’t change.

Like Conditional Sale agreements, you will be the vehicle’s registered keeper until you make the final payment and become the legal owner. However, with HP, you have to pay an additional ‘option to purchase fee’ at the end of the agreement for this to happen.

Pros of buying a car on a Hire Purchase agreement

  • Allows you to purchase a car you may not otherwise be able to afford
  • You’ll own the car at the end of the agreement
  • Hire Purchase agreements don’t usually involve a mileage allowance.

Cons of buying a car on a Hire Purchase agreement

  • If you miss payments, the car could be repossessed
  • Monthly payments can become a burden if your financial situation changes
  • When you compare the total cost of a Hire Purchase agreement, including interest, it may be higher than other payment methods.

Personal Contract Purchase (PCP)

On a PCP plan, you can finance a car and have the option to give it back at the end of the term, which is usually 3 to 5 years. Most PCP deals have a mileage limit, which means you’ll need to remain within an annual mileage allowance. If you go over this threshold, you’ll incur additional charges.

If you’re considering PCP, remember you’ll need to pass a credit check and potentially put down a deposit before buying the vehicle. You won’t own the vehicle at the end of the plan, but you can make a final balloon payment should you wish to buy the car outright.

Pros of buying a car on Personal Contract Purchase

  • Lower monthly payments compared to Conditional Sale or Hire Purchase agreements
  • More flexible as you don’t have to buy the car at the end of the agreement
  • You can change your car more often.

Cons of buying a car on Personal Contract Purchase

  • Exceeding mileage restrictions can be costly
  • You will have to make the balloon payment to buy the car outright
  • If you return the car, you’ll be charged for damage that falls outside fair wear and tear.

Leasing or Personal Contract Hire (PCH)

With a Personal Contract Hire agreement, you will pay to use the car for a set amount of time with no option to buy the car at the end of the agreement.

Think of it as a long-term rental, where you pay a fixed monthly fee for an agreed timeframe, usually 2 to 5 years. You’ll typically have to adhere to a mileage limit as part of the agreement, but you may receive a package that covers things like road tax and servicing and maintenance costs.

Are you considering leasing a new car? Check our guide for more insights into whether you should lease or buy your next car.

Pros of leasing a car

  • You can get a new car more often and won’t have to worry about depreciation
  • May offer lower monthly payments compared to other finance options
  • Leasing agreements usually include road tax or maintenance and servicing plans.

Cons of leasing a car

  • Exceeding your mileage limit or excess wear and tear will incur additional costs
  • You never have the option to own the car at the end of the agreement
  • The car will be repossessed if you fail to keep up with payments.

What is the best way to buy a car for you?

There are pros and cons to all of the finance options outlined above. Paying in cash, for example, is cheaper than other ways of paying as you avoid paying interest, but it can be difficult to save that much in one go, so your choice of vehicles may be limited.

Before you decide how to pay for your next car, do your own research and consider other costs, not just the amount you’ll pay for the vehicle. This way, you can secure a deal that works for you.

Servicing, maintenance, and car insurance fees will all add up, so you should consider these, too.

If you’ve decided that buying a car on finance is for you, but you need to figure out your credit score, let us help. We’ve created guides to clarify how to check your credit score and what credit score you need for car finance in the UK.

Buy your next car with Moneybarn

At Moneybarn, we specialise in helping customers get bad credit car finance, so if you’ve been rejected by other lenders in the past, we may be able to help.

We offer Conditional Sale finance agreements on cars, vans, and motorcycles, so you can spread the cost of a new or used vehicle without having to pay for it all upfront.

Discover what your repayments could look like by using our car finance calculator then, when you’re ready, get a quote using our simple online form.

Representative 30.5% APR.

Buying a new or used car should be enjoyable and exciting, but navigating the different payment options available can be tricky. There are a several steps between visiting dealerships or private sellers and picking up the keys to your new vehicle. All are equally important and should be considered to make sure you get the right car for you.

Here, we explore the different ways you can pay for your new car. We’ll cover how buying a vehicle outright differs from buying a car on finance so you can decide which method is right for you.

In this guide

Buying a car with cash

The most straightforward way of buying a new or used car is with cash. If you buy your car using cash or a cheque, you’ll immediately own the car outright.

Paying in cash will save you money compared to borrowing money using a personal loan or finance agreement. This is because, when financing a car, you’ll typically pay interest on the money you borrow. When paying in cash, you are making a one-off payment without that additional cost.

Being the car’s legal owner has several benefits, too. Firstly, it means you are free to sell it at any time should your circumstances change, or you decide you’d prefer a different vehicle. This differs from financed cars, where the individual taking out the finance agreement is typically the registered keeper, not the owner, so they can’t choose to sell it without first consulting with their finance provider.

Additionally, owning the vehicle will give you total flexibility with where and how far you drive. Leasing, for example, usually has mileage restrictions, with additional charges if you exceed your annual allowance.

Of course, paying everything upfront means you’ll need to have enough money saved in advance. Depending on the price of the car you’re hoping to buy, this can make paying with cash impractical or even impossible.

Pros of buying a car using cash

  • You will own the car outright so can sell or modify it as you want
  • You may save money compared to financing a car
  • Using cash means it’s a one-off payment.

Cons of buying a car using cash

  • Your choice of car is limited by the amount of money you have saved
  • The car’s value will depreciate over time, more so if it’s a new vehicle
  • You might not be protected if you have issues with the car.

Buying a car using a personal loan

When you use a personal loan from a bank or building society, you can borrow money to pay for the car of your choice, regardless of whether it’s a new or used car. However, you will be charged interest on top of what you’ve borrowed, which will increase the overall cost of what you pay for the car.

Most personal loans aren’t tied to the car itself. These are called ‘unsecured loans’. With unsecured loans, you’ll make monthly payments until the cost of the loan is paid back, over an agreed period of time. Some loans, however, are tied to the car itself – these are called ‘secured loans’.

Read our blog for more insights into the differences between car finance and personal loans.

The key difference between an unsecured loan and a secured loan is that your car can’t be repossessed if you don’t keep up with payments. Which is what could happen if you take out a secured loan.

Applying for personal loans can affect your credit rating, as lenders will check that you can repay the loan, often by performing a hard search on your credit file. Likewise, your credit score and history will also affect the interest rates you can get when you apply for a personal loan.

To check your credit score, you can use the following credit reference agencies:

Pros of buying a car with a personal loan

  • Personal loans can cover all of the cost of the car
  • Interest rates can be lower than using car finance
  • With an unsecured loan, you fully own the car, so you are free to sell or modify it as you want.

Cons of buying a car with a personal loan

  • Getting a personal loan is difficult if you have less-than-perfect credit
  • The loan amount will restrict your choice of cars and might not be enough to cover all running costs
  • You will be responsible for the maintenance and upkeep of the car.

Buying a car with a credit card

Using a credit card to buy a car has become less common due to the rise in popularity of car finance. Additionally, many dealerships don’t accept credit cards, so it’s best to check this before you plan on buying a car using this payment method.

You need to be aware of several things before you buy a car with a credit card, including that depending on your credit limit, you may not be able to buy the car outright just using your credit card. You may also be charged interest on the credit card balance if you don’t pay the balance in full. This would increase the overall cost of what you pay for the car.

Credit cards may be a safer option if you’re set on buying a car outright in one lump sum. Under Section 75 of the 1974 Consumer Credit Act, credit card companies assume some responsibility for purchases made under £30,000, meaning they could issue a refund if you can prove the goods or services you bought were sold under false pretences.

For example, say you purchase a used car from a private seller who claims that the vehicle is in fine working condition, but you soon find out that it has several defects or mechanical problems that render it unsafe to drive. In this instance, your credit card company may be able to provide a refund if the seller isn’t willing to.

Pros of paying for a car using a credit card

  • Some card providers offer rewards, like cashback or introductory offers
  • You have payment protection from Section 75 of the Consumer Credit Act
  • Once you have the card, you can buy a car quickly and conveniently.

Cons of paying for a car using a credit card

  • Most dealerships don’t accept credit cards
  • Your credit limit can restrict the choice of vehicles available to you
  • Interest rates can be high when introductory offers end, and not everyone qualifies for 0% interest rates.

Buying a car on finance

Buying a car on finance is a convenient way of purchasing a vehicle you may not otherwise be able to afford. Depending on your finance plan, paying in monthly instalments will either mean you own the car outright at the end of the term or let you trade it in to take out finance on your next car.

Let’s take a closer look at the different types of car finance available and compare their features, benefits, and limitations.

Conditional Sale

With a Conditional Sale (CS) finance agreement, you may need to put down a deposit before paying monthly instalments over a set period. Getting car finance without a deposit is also possible, but this depends on several factors, including your credit score and affordability.

Our finance agreements last between 36 and 60 months.

Something else to consider is that you will only own the car once you make the last payment of the agreement. Instead, you’ll be the ‘registered keeper‘, meaning you’ll be responsible for paying servicing and maintenance costs, but the finance company will be the car’s legal owner.

You will pay a fixed interest rate as part of the agreement, so your monthly payments will stay the same throughout.

This is the type of finance we offer at Moneybarn. We specialise in helping people get the cars they need, even if they have bad credit. We’ve helped thousands of people up and down the UK onto a better road ahead. For more information on this type of finance, read our guide on how Conditional Sale finance works.

Representative 30.5% APR.

Pros of buying a car on a Conditional Sale agreement

  • You’ll own the car at the end of the agreement without having to pay an extra fee
  • Keeping up with your payments can positively affect your credit score
  • There aren’t usually mileage restrictions in a CS agreement.

Cons of buying a car on a Conditional Sale agreement

  • You don’t have the option to hand the car back at the end of the agreement
  • You can’t sell or modify the vehicle until you become the legal owner
  • If you aren’t able to keep up with payments, your car may be repossessed.

Hire Purchase (HP)

A Hire Purchase agreement allows you to put down a deposit (usually 10% of the vehicle’s value) and make monthly payments for a car over a specific timeframe. You will own the car outright at the end of this period, typically 3 or 4 years.

The finance agreement is secured against the car, so if you cannot pay, the car may be repossessed. Your monthly payments will typically include a fixed interest rate, so the amount you pay each month won’t change.

Like Conditional Sale agreements, you will be the vehicle’s registered keeper until you make the final payment and become the legal owner. However, with HP, you have to pay an additional ‘option to purchase fee’ at the end of the agreement for this to happen.

Pros of buying a car on a Hire Purchase agreement

  • Allows you to purchase a car you may not otherwise be able to afford
  • You’ll own the car at the end of the agreement
  • Hire Purchase agreements don’t usually involve a mileage allowance.

Cons of buying a car on a Hire Purchase agreement

  • If you miss payments, the car could be repossessed
  • Monthly payments can become a burden if your financial situation changes
  • When you compare the total cost of a Hire Purchase agreement, including interest, it may be higher than other payment methods.

Personal Contract Purchase (PCP)

On a PCP plan, you can finance a car and have the option to give it back at the end of the term, which is usually 3 to 5 years. Most PCP deals have a mileage limit, which means you’ll need to remain within an annual mileage allowance. If you go over this threshold, you’ll incur additional charges.

If you’re considering PCP, remember you’ll need to pass a credit check and potentially put down a deposit before buying the vehicle. You won’t own the vehicle at the end of the plan, but you can make a final balloon payment should you wish to buy the car outright.

Pros of buying a car on Personal Contract Purchase

  • Lower monthly payments compared to Conditional Sale or Hire Purchase agreements
  • More flexible as you don’t have to buy the car at the end of the agreement
  • You can change your car more often.

Cons of buying a car on Personal Contract Purchase

  • Exceeding mileage restrictions can be costly
  • You will have to make the balloon payment to buy the car outright
  • If you return the car, you’ll be charged for damage that falls outside fair wear and tear.

Leasing or Personal Contract Hire (PCH)

With a Personal Contract Hire agreement, you will pay to use the car for a set amount of time with no option to buy the car at the end of the agreement.

Think of it as a long-term rental, where you pay a fixed monthly fee for an agreed timeframe, usually 2 to 5 years. You’ll typically have to adhere to a mileage limit as part of the agreement, but you may receive a package that covers things like road tax and servicing and maintenance costs.

Are you considering leasing a new car? Check our guide for more insights into whether you should lease or buy your next car.

Pros of leasing a car

  • You can get a new car more often and won’t have to worry about depreciation
  • May offer lower monthly payments compared to other finance options
  • Leasing agreements usually include road tax or maintenance and servicing plans.

Cons of leasing a car

  • Exceeding your mileage limit or excess wear and tear will incur additional costs
  • You never have the option to own the car at the end of the agreement
  • The car will be repossessed if you fail to keep up with payments.

What is the best way to buy a car for you?

There are pros and cons to all of the finance options outlined above. Paying in cash, for example, is cheaper than other ways of paying as you avoid paying interest, but it can be difficult to save that much in one go, so your choice of vehicles may be limited.

Before you decide how to pay for your next car, do your own research and consider other costs, not just the amount you’ll pay for the vehicle. This way, you can secure a deal that works for you.

Servicing, maintenance, and car insurance fees will all add up, so you should consider these, too.

If you’ve decided that buying a car on finance is for you, but you need to figure out your credit score, let us help. We’ve created guides to clarify how to check your credit score and what credit score you need for car finance in the UK.

Buy your next car with Moneybarn

At Moneybarn, we specialise in helping customers get bad credit car finance, so if you’ve been rejected by other lenders in the past, we may be able to help.

We offer Conditional Sale finance agreements on cars, vans, and motorcycles, so you can spread the cost of a new or used vehicle without having to pay for it all upfront.

Discover what your repayments could look like by using our car finance calculator then, when you’re ready, get a quote using our simple online form.

Representative 30.5% APR.

 
Chris Lambert, Product Development Manager
Bringing you guides that compare different finance products available in the market today.
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