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Most Cost-Effective Way of Car Finance

by Kamal Salar

Buying a car is a big commitment financially, so it’s important to do some proper research to discover the most cost-effective way of proceeding.


If you are lucky enough to have some savings, it is unlikely that they will be earning much interest at the moment, with the low-interest rates showing no sign of changing any time soon. So, instead of leaving your savings in the bank, you could release them to fund part or all of the cost of the car. A wise way of proceeding is to use a credit card to buy the car, and then use your savings to pay off the credit card bill in full. In this way you will benefit from the built-in purchase protection that comes with using a credit card.

Hire Purchase

Hire purchase (HP) is a popular way of buying a car on finance; the balance is then paid off in installments which can be spread over a term of between 12-60 where payments are spread over 12-60 months. You will normally be required to put down a 10% deposit. The HP agreement will be drawn up by the car dealer, and tend to be more competitively priced when you are buying a brand new car. The loan is secured only against the car, so full ownership only comes when the last payment has been made.

Personal contract plan

Personal contract plan (PCP) is similar to hire purchase but instead of paying the sale price for the car, you agree to pay the difference between the forecourt price and the forecasted price (based on a number of factors) at the end of the agreement. The repayment schedule for PCP tends to be shorter, at between 12 to 36 months. When the term ends you have several choices, to hand back the car, to trade it in, or pay the resale price and keep the vehicle.

Personal loan

Personal loans are generally the most cost-effective way to buy a car, the caveat being that you must have a decent credit rating to get a good deal. You can apply for a personal loan from your current bank or building society, or research via a broker or comparison site. It is not advisable to secure the loan against any property you may own. If you own a car that you wish to trade-in or sell, do shop around for the best way to sell it, as prices offered can vary considerably.

Personal Leasing

You never actually own the car with personal leasing. A monthly payment gives you the usage of a car, including servicing (a condition of this is that you do not exceed the agreed mileage) At the end of the term, you give the car back. This is a good way to drive a decent car for a clear, fixed cost. You don’t have to worry about unexpected repairs or depreciation and so forth, but you will be paying over the odds for the privilege.

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