With many people changing their cars every 2-3 years, being able to secure a car with the best deal possible can save some serious cash. In this article, we’ll walk through the options for buying a car, and the pros and cons of each. 

Best way to buy a car: Finance or Cash 

The finance vs cash decision is something that can take quite a bit of deliberation. Whilst financing can allow you to purchase a more expensive car without needing to outlay a large chunk of cash, it can end up costing significantly more in interest. 

To decide, first familiarise yourself with the different types of finance available including Hire Purchase (HP), Personal Contract Purchase (PCP), Bank Loans or Personal Contract Hire (PCH). 

What is HP? (Hire Purchase) 

With HP, as the name suggests, you are paying monthly towards the cost of the car, after an initial deposit. Until all payments have been made, you do not own the car - hence Hire Purchase. When the last payment is made, the car is legally yours. 

Unlike PCP, there is not a large payment to be made at the end, but there may be a small transfer of ownership fee. 

Why choose Hire Purchase? 

• You don’t need to pay 100% upfront for the car 
• If you finish the contract, you’ll own the car 
• An HP loan is secured against the car, meaning it’s better for those with a lower credit score 
• There’s no mileage limit 

Downsides of Hire Purchase 

• You pay interest in addition to the cost of the car (built into the monthly payments) 
• Monthly costs can be higher than PCP 
• If the car breaks in the contract period, it’s on you to fix it 

What is PCP? (Personal Contract Purchase) 

Another common way of getting hold of a new car is PCP, a monthly payment is made (often with a deposit at the start). At the end of the contract period (usually 4-5 years) a 'balloon' payment is required to purchase the car.  

Whilst the name suggests the car is purchased, this is not a requirement of the contract, as you can return the car at the end of the term, if you do not wish to or cannot afford to pay the balloon payment.  

Why choose PCP? 

• You don’t need to pay 100% upfront for the car 
• The monthly cost is lower than HP (on comparable cars) 
• The cheapest way to drive a brand-new car 
• Gives the option to own the car at the end of the contract 

Downsides of PCP 

• Interest rates can be higher than other methods 
• In many cases, the balloon payment is not cost-effective, as the car will be 4-5 years old 
• PCP contracts have a yearly mileage cap 

What is Personal Contract Hire? (PCH) 

Personal contract hire is very similar to leasing, in that you can pay a small rental fee to begin the deal, and then a moderate monthly payment for the duration of the contract.  

At the end, the car is returned to the financier, and there are no more fees to pay (apart from any damage or mileage outside the terms stipulated). 

PCP can be a great option if you want to drive a brand-new car, but don’t want to own it, as the monthly fees are constant during the contract period. 

Why choose PCH? 

• No large outlay at the beginning of the contract 
• No balloon payment at the end 
• Get a new car every 3 or so years 

Downsides of PCH 

• Higher monthly payments than HP 
• You will not own the car at the end of the contract 
• Mileage limits are common 

How to buy a car with a bank loan 

Banks will lend money for large purchases such as cars at reasonably good interest rates, especially when compared to most finance deals like HP or PCP.  

Once the loan is acquired you buy the car outright as if you are paying with cash. This means no finance contract with the dealership/trader. If your credit score allows and you wish to own the car outright, this can be a good way to go. 

Many car loans are ‘secured’ against the car meaning the bank will seize the vehicle as a way to get their money back if you don’t pay. 

Why choose a bank loan to buy a car? 

• Better interest rates 
• You can own the car outright 
• No mileage limits 

Downsides of using a bank loan to buy a car 

• You cannot just return the car if you cannot pay 
• You need a reasonably good credit score to get a loan 

Buying a car with cash 

If you can afford to, buying a car with cash can avoid the downsides of the above finance options, and work out considerably cheaper, but there are still points to consider. 

New car depreciation 

If you are buying a brand-new car, you should consider the fact that it’s likely to lose half its value in the first three years. If you are set on a brand new car, and you don’t want to consider leasing or PCP, try to avoid certain makes and models to reduce the hit on deprecation. 

The best cars for depreciation are listed on the Money Saving Expert’s website here, with MINI, Audi and Volkswagen taking the top places.  

In some instances, the depreciation over the first three years may be more than the cost of leasing, so make sure to do your research. 

What is the cheapest way to finance a car? 

The various finance deals exist to allow those with different circumstances to pick one that best suits their needs. PCP and HP are the best ways to buy a new car with finance, but which one is better will depend on the interest rate offered.  

A great tool for checking PCP and HP contract costs can be found here. 

Cheapest way to buy a car 

If you can afford to, the cheapest way to buy a car is with cash, as you won't pay any interest on the money you've borrowed.  

If you’d rather not get finance and cannot afford a new car, there are some great second-hand cars available for all budgets. 

The cheapest places to buy a car 

Since the internet, there are more ways than ever to buy a car, if you’re patient, willing to take a risk and have the knowledge (or a knowledgeable friend) on car faults, Facebook Marketplace and eBay can yield the best bargains.  

Is it best to buy a second-hand car privately or from a dealer? 

Generally, buying privately can get you more for your money, but with a private sale (from a non-business) you get no warranty or refunds. Sold as seen means you need to find out if anything is wrong with the car before buying.  

Buying from a car trader/dealer 

Car dealers exist for all price points, the likes of Cazoo and Cinch offer a wide range of nearly new cars, all with finance available.  

Car purchases from a business are covered under a specific section of the consumer rights act, meaning if something goes wrong within a specific time period, you can get the garage to fix, replace or refund the car.  

Buying from a dealer typically costs 10-25% more than from private sellers.  

Buying a car on eBay 

Marketed as the online auction place, eBay has been the place for bargain hunters to pick up all kinds of items since its creation. Buying cars on eBay is certainly not out of the ordinary, with a specific site set up to do so.  

The benefits of buying through eBay, are found if you are patient. Whilst they are less common than they used to be, many people still run auctions on cars starting at very low prices.  

Tips for buying cars on eBay 

• Look for listings ending at anti-social times of the day, they usually have less competition and therefore sell for lower prices 
• Search misspellings of the cars name, as this also reduces visibility and competition 
• Use the ‘sold’ filter option to see what similar cars have sold for in the past 

Autotrader 

As well as a well-respected auto magazine, Autotrader have a long history of including car adverts, nowadays their website is still one of the most visited by those searching for vehicles to buy. 

Adverts tend to be better listed than those on the marketplaces, this is because the adverts cost upwards of £20 list, meaning whether private or business, the seller takes more care over the description and photos.  

Facebook Marketplace and Gumtree 

Since Facebook launched its marketplace a few years ago it’s become one of the most populated places to buy and sell online. There are some great bargains to be found, as there is so much competition on the platform. 

When using these kinds of marketplaces - Gumtree included - it’s advisable to exercise caution as there are often various scam listings, we advise to never send money without seeing the car, even a deposit, and make sure you take care when viewing cars. 

Once you’ve bought your new car, repairs and maintenance are inevitable, with Bumper’s pay monthly car repairs, we can help spread the cost into interest-free instalments. Find your nearest Bumper partner today.