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Financing Your Car How To Pay For Your First Car There are countless options when it comes to purchasing a car. Clearly, the best option is to pay for the car outright and avoid all the pitfalls that come with taking out any form of finance. However, learning to drive is not a cheap exercise and it's quite possible that, having just paid for a course of driving lessons, you don't have enough money to buy a suitable car, not least when you consider the significant costs of taking out car insurance. So, assuming that a cash purchase of that shiny new car is out of the question, what are your options? The Bank of Mum & Dad Usually, the cheapest way to borrow the money you need is to beg, plead or grovel to your family.  If this doesn't bear fruit, you could always try emotional blackmail (however, we don't condone this route!).  However, it's quite possible that your family have already spent a significant amount on your driving lessons and they may be somewhat reluctant to part with more money, in which case, you'll need to think again. Personal Loan A personal loan is probably the simplest option to raise the money needed for your car.  There are literally hundreds of personal loans available.  You've almost certainly been sent leaflets by your own bank or buidling society, seen the endless adverts for loans on the TV and in the press and, these days, even the supermarkets are getting in on the act.  However, not all personal loans are the same and the last thing you want to do is to go for the first one you come across. Shopping around will allow you to find the best deal for you and could save you a small fortune in the long-run.  There are several websites that compare the various loans available, but be aware that they do not necessarily include EVERY loan. Make sure that you get given the Annual Percentage Rate when comparing the various loans and be aware that many companies will push some form of payment protection plan that is designed to pay your repayments if you cannot do so due to unemployment or illness. However, this is a very expensive option in most cases. The amount of deposit you can pay towards the car will have a big impact on the repayments, as will the length of the loan.  Do bear in mind, however, that you could end up paying back money for a car you no longer own if you were to sell the car before the end of the term of the loan. The other thing to be aware of is that the interest rates can and do fluctuate.  This can have a large effect on the cost of your repayments unless you have opted for a fixed-rate loan. Credit Card If you have a good credit rating and are buying from a large dealer, it may be possible to use a credit card to pay for some or even all of your car.  This can work out well if you have been able to obtain a credit card with 0% interest on purchases. This method would enable you to pay for the car over a few months rather than years, but would save you spending money on interest. Hire Purchase If you are buying your car through a dealership, the simplest way is to use hire purchase.  This means that you pay a deposit and then a fixed monthly payment for a period of up to five years. At the end of the term, you own the car. The trouble with this type of deal is that there is little room for manoeuvre on the purchase price and the deposit required can be quite large. Personal Contract Purchase Personal Contract Purchase plans (PCPs) are finance deals offered by the car companies that give you different options on keeping, selling or trading-in the car at the end of the agreed term. Normally, you would pay a modest deposit.  You then choose a repayment term, normally between three and five years.  You also agree to a maximum miles per year.  This is normally around 10,000 - 15,000. You would be given a guaranteed minimum future value (GMFV) which is based on the age, predicted mileage and estimated condition at the end of the repayment term. When your repayment term is completed, you have a few options: You can use the car as part exchange for a new one with any value on the car over and above the GFMV being used as a deposit. You may be able to pay what is known as a balloon payment (equivalent to the GMFV) in order to own the car or you can hand the car back with nothing left to pay. If you have gone over the agreed mileage, you may have to pay a supplement to the dealer to compensate them. Your monthly payments on PCPs are lower than with loans but you have to remember that you pay a deposit at the start and the balloon payment at the end, so they normally work out dearer in the long-run. Car Leasing Another way to get the car you want is to lease it from a leasing company rather than buying it.  This is basically a long-term rental of the car.  You never own the car but you pay the leasing company a fixed amount that is calculated based on your anticipated annual mileage.  The advantage of leasing is that you can include all the servicing and other ongoing costs, but in the long run, this can be a very expensive way to finance a car, but it does offer much more flexibility. Overall However you choose to pay for your car, the most important thing to remember is this: DO NOT AGREE TO SPEND WHAT YOU CANNOT AFFORD! It's better to put up with an older car or one with a smaller engine or less street-cred than it is to end up with a debt you cannot afford to repay.

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