How to finance a new car

A range of finance products for UK motorists

car finance money vehicle

With the widest ever range of finance products on offer, it has never been easier for motorists to buy a new car. And with good reason as dealers usually make more money on the finance products sold than the profit from the vehicle.
Despite this fact, it’s possible to get behind the wheel without it costing a fortune.
Here, I’ll run through some of the best car buying options available in the UK and a trick to borrowing money with little or no interest.
Most of the methods below should include your own car history check. If you’re at all uncertain about purchasing a used car a ClickMechanic car inspection is recommended.

Common ways to a new car:

Hire Purchase – This traditional method to borrowing is still widely used. You’ll need a deposit (10% or something similar) or a part exchange car. You can borrow the rest from a finance company for a set period.
Typical agreement:
Car: £5,000
Deposit or part exchange: £1,000
Loan amount: £4,000
Period: 36 Months
APR: Dependent on finance company and credit score (low is around 5% APR)
Typical monthly repayment: £147.68
Most dealers provide hire purchase via a finance partner like MotoNovo

PCP (Personal Contract Purchase) – A suitable way to a new car if you like to upgrade regularly with lower monthly payments to fit your budget.
You don’t pay off the value of the car with PCP and you don’t own it at the end of the contract (but you’ll have the option to buy at the end via a balloon payment). Lenders usually want around 10% of the car value as a minimum but the more deposit you pay the less your monthly repayments will be.
The amount borrowed is also based on the predicated car value at the end of the term. You pay the depreciation as monthly payments plus some interest – typically 4% to 8%.
You need a decent credit score to obtain PCP.
Check out this article for some detailed information on PCP.

Leasing – Similarly to PCP, a car lease is great if you like to upgrade regularly. Leasing can save money as you sometimes don’t need to pay for road tax or servicing (if the car is brand new) but this will depend on the supplying dealer.
There are a wide range of cars available from a Ford Fiesta to a Range Rover Envogue.
In years past, leasing was only available to those with a solid credit file but there is a huge poor credit market for leasing. Here is one reputable leasing company to look at.

A little secret to borrowing money at 0% interest!
Buying a car with a credit card may seem like a scary prospect but it can be the cheapest if you plan.
You’ll need a superb credit score for this to work.
So, we have all heard of a 0% interest credit card. This type of offer is available for a fixed period of around 18 months. But, some lenders like Virgin credit card now offer 0% for up to 24 months.
Note, these offers are updated regularly so you’ll need to do some research on the best offers.

Making a credit card car purchase work for you:

Let’s say you found a credit card with 0% Interest available for up to £5,000 over 18 months.
You can borrow the 5k to buy your car. At month 15 of your lending period you must apply for another 0% interest credit card and balance transfer over before any interest kicks in.
There may be a balance transfer fee, but this is nominal at around £75. To keep the lend amount interest free you must always make the minimum payment and settle the outstanding.
It’s straight forward provided you think through the process and continually plan ahead.
Finally, you also get another layer of insurance that comes with any credit card purchase. So, if you buy a used car for £5,000 and inherit mechanic issues the credit card company have a legal responsibility to help (subject to the individual terms and conditions of the credit card company).