Top considerations when buying a car

Once your heart is set on a new car, it’s time to use your head to get the best deal possible. A bit of homework could save enough cash to pay your first car insurance bill or fuel an amazing road trip.

Young family getting into a car ready to go their travels

The first big question is how to fund your new wheels. Finance through car dealerships is popular, but there are also bargains to be had on second-hand car sites. Just don’t forget to budget for other essential car expenses like insurance, servicing and novelty air fresheners.

Buying a car: where to take your business?

Car dealerships

Car dealerships are usually part of a chain and offer new cars as well as manufacturer-backed ‘approved used cars’. You can also try asking for an ex-demo car, which, although technically used, will still be maintained to full dealer standard.

Pros: You can expect most dealerships to offer full consumer protection, good warranties, and to have a close connection with the manufacturer, so you can get support if you have any problems. They also offer a range of finance options, including the chance to part-exchange your current car.

Cons: Franchises and bigger car dealerships have more overheads than independent sellers, which means they can be more expensive. Carefully consider whether you want and need certain offers like extended warranties or GAP insurance – an optional extra that helps cover the difference between the amount you owe on your car and its actual cash value in the event of an accident. Also be wary of finance deals with high APR credit agreements.

If you’re not sure whether a certain dealer is giving you the best deal, get a full spec sheet of exactly what you want and then phone every major dealer you can. You’re likely to get different prices from each. You can even call dealers that are far from where you live, as many offer a car delivery service for a reasonable fee.

Car supermarkets

Car supermarkets often have hundreds of used cars on display, including ones that franchises have been unable to sell. The variety of cars on offer and lower overheads mean they may not look as smart as the ones under the shiny lights of the car dealership showroom, but there could still be bargains to be found. If you’re thinking of buying a used car, a vehicle check (HPI check) will identify the vehicle history for you.

Pros: You can save a lot on as-new and older vehicles, and prices are almost always fixed, which takes the stress out of haggling.

Cons: You probably won’t get as much support after buying as you would with a dealership and warranties may be less comprehensive. However, you can still expect to find limited-period returns policies, just in case you have second thoughts after driving it home.

Offline and online adverts

Brand new cars lose much of their value as soon as they’re driven off the forecourt, so a second-hand car can be a better option – especially if it’s ‘nearly new’ (around a year old).

You’ll find the widest selection of cars online, with thousands available at any one time.

You can look for good deals through offline classified advertisements or go online to auction sites, where you’ll find cars from private sellers and dealers. Some have fixed ‘Buy it now’ prices.

Pros: You’ll find the widest selection of cars online, with thousands available at any one time. This means you can compare like-for-like cars to make sure you’re getting the best bang – and not banger – for your buck.

Cons: You won’t find the same level of consumer protection as dealerships. For example, when you buy a used car privately as opposed to from a dealership there is no legal requirement that the car be ‘fit for purpose’. So make sure you check out the vehicle in person, preferably with a knowledgeable friend or family member, and take along an original copy of the advert to check the car against.

A friend or acquaintance

Buying from a friend can be one of the simplest ways to get your hands on a new runaround.

Pros: You hopefully know the seller well enough to get lots of honest information on the car and its history.

Cons: If something goes wrong, you won’t have the same protection as if you’d bought from a dealership. Things could get awkward if you feel the seller wasn’t upfront about known issues. To keep everyone smiling, do the same checks as if you were buying from a total stranger, including taking it for a test drive.

How to finance buying a car

Personal loan

personal loan could be a cost effective way to finance buying a new car, as long as you can make your repayments in line with the agreement. You borrow a fixed sum then repay it in monthly instalments, usually over one to five years, but sometimes you can choose a longer term.

Pros: If you have a good credit rating, you might be able to get a favourable low interest rate.

Cons: The interest rate you’re offered might differ to the representative APR – it depends on your personal circumstances.

If you have a good credit rating, you’ll be more likely to get a loan with a better rate. Read our guides on how to check your credit score and how to improve your credit rating further.

Hire purchase

Buying a car from a car dealership is often done through a hire purchase agreement. You pay a deposit on the car and make monthly payments. At the end of the contract the car is yours.

The main difference between hire purchase and a personal loan is that with hire purchase you don’t own the car until the final payment, whereas with a loan you own it from day one.

Pros: Repayment terms are flexible to help fit your budget. The deposit is relatively low and if you change your mind after paying for half the car, you might be able to change your mind, return it and not make any more payments.

Cons: The main difference between hire purchase and a personal loan is that with hire purchase you don’t own the car until the final payment, whereas with a loan you own it from day one (but still need to repay the loan).

The longer your repayment plan, the more you’ll pay in interest. You won’t own the car until the final payment, and until you’ve paid a third of the total amount the lender can repossess the car without a court order. If you’re lucky enough to qualify for a 0% interest hire purchase deal, the deposit is likely to be higher than usual.

You’ll also need to make sure you pay off the whole amount before the 0% interest period ends, otherwise you could face a high interest rate. Whatever type of loan you use to buy a car, the monthly repayments could be hundreds each month, so make sure they’re affordable alongside your other bills.

Personal contract purchase (PCP)

A PCP is a bit like a hire purchase except for one key difference. You don’t own the car at the end of the period. This is because your monthly payments have only been covering the depreciation of the car (how much it drops in value between the start and end of the contract). If you want it to be yours, you need to pay a substantial final payment and possibly an admin fee.

Pros: Monthly repayments are typically much lower than with hire purchase, which might mean you can afford to drive a higher-spec car.

Cons: You don’t own the car at the end of the contract period unless you pay a large additional payment. Many people don’t do this and instead choose a new PCP deal.

Personal leasing

This is just like a personal contract purchase, but there’s no option to buy the car at the end of the finance period. Here, you would likely trade up your vehicle with your dealership and enter a new personal leasing agreement.

Pros: If you like the idea of changing your car style like you’d change your mobile phone, going from a Supermini to an SUV, personal leasing could be a great option for you.

Cons: If your financial situation changes while leasing a car, you’ll be committed to the remaining payments (or paying a penalty) like you would if you were renting your home.

0% finance

With a 0% finance deal, you could pay a larger deposit and make monthly repayments for the remainder, with nothing to pay in interest. You’ll need to remember to make your payments on time, otherwise the promotional rate will go back to your standard purchase rate.

Pros: You get to buy the car at the purchase price without shelling out more on interest.

Cons: 0% finance offers aren’t available to everyone; you’ll need a good credit rating and enough money to pay the sizeable deposit.

Credit card

Some credit cards don’t charge interest on new purchases for a set period. Just remember, depending on how much your new car costs, you’ll probably need a very good credit rating and a credit limit that will allow you to comfortably cover the cost.

You’ll want to pay off the debt before the 0% interest period ends to avoid additional costs, although this could mean making very high monthly repayments alongside your other bills. If you don’t repay everything before the 0% interest period ends, you could face a higher rate than what you’d pay using a personal loan, so you need to be really disciplined with repayments. Setting up a Direct Debit could help you make the right repayments on time, every time, as long as you have enough money in your account each month.

Even with a high limit, it’s unlikely you’ll be able to buy a new vehicle using just your credit card, so a used car could be a better option. Just remember, rather than trying to find a car that is close to the maximum you can afford to borrow using a credit card, it’s better to first decide on what car you need. You can then choose the best payment method to buy it, which may or may not be on a credit card.

Other costs to look out for

You’ve had your eye on the prize for a while and the keys for your new car are almost in hand. Before you set off on your first road trip remember there are a few other expenses to consider as well as the purchase price.

  • Car insurance
    The average cost of comprehensive insurance in 2017 was £485 per year, according to the Association of British Insurers. It’s determined by your age, sex, where you live and your claims history.
  • Car tax
    This depends on your car’s level of CO2 emissions. Fuel-efficient and electric or hybrid vehicles are taxed less. Diesel cars and gas guzzlers are taxed at a higher rate. Check which CO2 band your car falls into with your dealership or seller.
  • MOT
    Every car over three years old needs an annual MOT. The maximum a garage can charge you is £54.85 for the basic test, plus any parts and labour. Remember, garages want your future business, so you might be able to find a better price.
  • Fuel
    The price is always changing, but you’ll use more or less fuel depending on the car you buy.
  • Servicing
    Some car dealerships will include servicing as part of a finance deal.
  • Breakdown cover
    This will entitle you to roadside assistance free of additional charges.
  • Buying a new car could be expensive, so a bit of upfront totting up on how much you will need to spend a month and factoring in repayments, will help you in the long run.

What's next?

If you’re considering buying a car on finance and your credit score needs a boost, check out our article on how to improve your rating.

Find out how to improve your credit rating