The question of whether to buy a car outright with our own money, or instead take out a car finance deal to afford it, may seem easy enough to answer for many of us.
Surely, you might think, if you do have the funds in place that would cover a car purchase, you might as well go right ahead and use them. And if you don’t have the funds… well, the decision to apply for car finance may seem to make itself, especially if you urgently require a vehicle for personal or practical reasons.
But it’s not necessarily as straightforward a choice as that, as our car finance experts at CarFinanceGenie explain below.
The pros and cons of buying a car outright
There’s no doubt that paying the entire cost of your car upfront is the cheapest overall option, simply because it’ll save you from having to pay interest on a loan or car finance agreement.
Even if you don’t have enough funds to pay for the whole cost of a car, you can still save a fair amount on interest payments by using those savings to put down a larger deposit on a car finance deal, which will effectively lower your monthly repayments.
And even if you can afford to pay every penny of the asking price of the car you’re looking to buy from your own funds, you could choose to put at least £100 of it on your credit card to benefit from additional protection, in accordance with section 75 of the Consumer Credit Act.
Buying your car outright with cash isn’t without its potential disadvantages, though. Depending on your funds, it might mean you lack money in your bank account to deal with any ‘emergencies’ that arise elsewhere in your life. You might also desire a more expensive car than your current savings allow, and which a car finance deal could make possible for you.
The pros and cons of taking out car finance
As we touched on above, financing a car could be your route to a more expensive and desirable vehicle than you would be able to drive if you were purchasing using your savings alone.
Plus, the very nature of car finance is that payments are spread out over a loan term of between one and seven years, rather than requiring you to pay the entire cost of the car immediately. That means you can keep some of your savings aside for other things that may be a priority for you, such as a deposit to buy a home, or even to pay down other debts.
The very act of taking out a loan and paying it off over time could even help to improve your credit score, demonstrating to credit reference agencies (CRAs) that you handle credit responsibly and consistently make repayments on time.
Finally, it’s also worth considering the breadth of choice available to you when financing a car. Here at CarFinanceGenie, for instance, we largely deal with two forms of car finance: hire purchase (HP) and personal contract purchase (PCP), which have their own respective advantages and disadvantages. You should carefully consider these pros and cons before making your choice.
The ‘winner’ of this particular shootout will depend greatly on your own priorities, circumstances and needs. If you have adequate savings already to purchase a car outright and doing so would not leave you overly short of other funds, this might well be the right choice for you.
Financing a car, however, is a hugely popular route for many people to get behind the wheel of a vehicle that might be beyond their budgetary reach otherwise. It also allows borrowers to spread out the cost of their vehicle purchase over time.
As a leading broker that also helps to arrange bad-credit and no-deposit car finance for those wishing to drive away a quality used car, CarFinanceGenie is proud to serve drivers with a wide range of needs. We are based in Essex but offer finance nationally, so why not ask for a competitive car finance quote from our extensive network of lenders today?