Passing your driving test, theory and practical, and having a driver’s license, is a license to freedom.
No more bussing it, waiting in the rain and cold, no more checking the train times, and no more asking family and friends for a lift. You are free…..but only if you have a car.
So passing the tests is only the beginning.
You need to buy a car, and unless you have the money saved, how will you make what could be the second largest purchase of your life???
This simply means you pay cash for the car, you have saved the money and are a cash buyer.
Being a cash buyer does have its advantages:
- If buying from a private seller you can negotiate on the price.
- You do not have any monthly payments for the car.
- You ow n the car outright.
The main disadvantage of paying cash is you need to save up the money to do this. If you are looking at a car that costs £10,000, it may take you a bit of time to save that money.
That is why many people when they buy a car look at finance options.
Financing a Car
There are various finance options when you buy a car, as to which one is best for you will depend on your financial situation, and also your credit score, the cost of the car, and other factors.
You go to the bank, or apply online for a personal loan which you then use to buy the car. You are also like a cash buyer then as the bank gives you the money. So you have the advantages of being a cash buyer, without having to save the money.
In addition, the bank does not hold any lien or interest in the car, you own the car outright.
There can be some disadvantages to getting a personal loan to buy a car:
- You need to qualify for the loan.
- You need a good credit score.
- You may not receive the best interest rate.
PCP/Personal Contract Purchase
PCP or Personal Contract Purchase has become a very popular way to finance a car in the past few years. The contract works like this:
It is similar to a HP or Hire Purchase financing discussed below, you pay a deposit and monthly payments, the difference is that at the end of the financing period, which can be a few years, you have some options with the car:
- You can trade the car back in, and start again with a different and new car.
- Hand the car back and walk away.
- Pay a balloon or final payment and keep the car.
PCP financing is popular with those that like getting a new car every few years, or just being done with a car after the financing period.
One disadvantage of PCP financing is you can be capped at your annual mileage, which means if you go over this mileage, you owe money per mile you go over.
You are also liable for any excessive wear and tear on the car. You could be charged for these aas well.
HP or Hire Purchase
With HP or Hire Purchase financing you pay a small deposit, maybe 10%, monthly payments, and at the end of the contract you own the car.
In some HP contracts if you have difficulty paying the monthly payments, after you have paid half the agreed payments, you can give the car back.
In addition, should you default on the agreement, the car can be repossessed.
Leasing or Personal Contract Hire/PHC
Leasing a vehicle is something that has become and was popular with businesses.
You pay the monthly payment, you do not own the car, and at the end of the agreement, you turn the car back in. But just as with PCP financing you are liable for excessive wear and tear, and also any mileage over the set annual mileage amount.
When you lease a car, you do pay a deposit, and never own the car. Which again is good if you like a new car every few years.
If you have any questions related to this, just ask me here.