Financing vs Buying: Which is Better?

By CarMoney July 1, 2022
Financing vs Buying: Which is Better?

Buying a new car can be an exciting time! But it can be one of the most expensive purchases you make, so it is vitally important you do your research into what car you need and how much you can afford. But, what if you had enough to buy a car outright? Is it smarter to pay the full value upfront, or take the stretched payments through a loan/car finance?

There are benefits and drawbacks of buying a car with cash and finance, and one option will suit some people better than others. Here, we will look into the advantages of buying a car outright with cash and the reasons why you could be better off taking out a finance deal instead.

Buying a Car with Cash

Most car finance deals will come with some amount of interest for borrowing (though there are some 0% rate options) meaning you end up paying more for the car than the list price. Buying with cash also means you don’t need to worry about any extra paperwork that may come with car finance and you can focus on discussing the car and perhaps a discount for paying up front. The biggest advantage of buying the car outright is that you will own it from the start, with a finance deal it is not yours until the end of the agreement.

An important thing to remember is that brand new cars will lose around 50%-60% of their value in the first 3 years before it slows. So if you are in the market for a brand new car and want to pay cash, you will lose a lot of money on this investment. 

Advantages of buying outright:

  1. You don’t need to worry about mileage limitations or interest rates that come with finance deals.
  2. You own the car outright from the start and usually pay less overall than you would if you take out finance. 
  3. No monthly repayments or credit check to worry about

Taking out Car Finance

When you take out car finance you are borrowing money in order to either purchase the car or use/lease the car over a certain period of time. There is more than one option for finance:

Options for car finance:

  • Hire Purchase (HP)

    HP is a basic form of car finance that allows you to spread the cost of the car over many months, usually 30-60. You pay a monthly price to pay off the car plus any interest for the cash borrowed. 

  • Personal Contract Purchase (PCP)

    PCP is a little different to HP, as you are not paying for the car itself but in fact, you are paying for the depreciation of the vehicle. For example; if you want to buy a car for £15K, you would pay a monthly rate set by the lender to compensate for the loss in value of the vehicle. After 30-60 months you can either hand the car back to the lender, or you can pay a lump sum to buy the car. Perfect for someone who likes to change their car regularly.

  • Personal Loan

    A personal loan could give you enough money to buy a car outright. You’ll then pay the loan back over a set length of time, usually at a fixed interest rate. One advantage of a personal loan is that it’s unsecured, meaning you don’t have to use an asset (such as your car or house) as security, although it is sometimes easier to get approval or a better rate by applying for a loan that’s secured against your car.

  • Leasing

    When you lease a car, you don’t actually ever own the vehicle, you just make regular payments for using it. How much you’re charged is usually based on the value of the car, how long you’ll use it, and an agreed mileage allowance. 

Advantages of car finance:

  1. Research from AutoTrader revealed that 36% of car buyers took out a finance agreement because they couldn’t afford to purchase a car otherwise. Finance enables people to drive a car despite being on a tight budget.
  2. Financing a car spreads the cost over several months making it more affordable. Before signing anything, you agree on an affordable fixed monthly payment with the dealer or finance company that you can budget for each month.
  3. If you don’t have a large sum of disposable cash, car financing can help you get a much higher quality vehicle than if you used cash. You could drive out of the garage in a brand new car having only paid a few hundred quid.

Cash or Finance?

Many believe that if you have the cash to pay for something outright then you should. It doesn’t leave you in debt and gives you something you can sell or trade in (even though the value depreciates rapidly). 

For those who don’t have that much cash readily available, car financing is a brilliant alternative. It allows many to drive vehicles they would never normally be able to afford. It is important to remember that it is up to the buyer to make sure they are not signing up for something they cannot afford. Missing finance payments could lead to the car being taken off of you. 

Is there someone who can help with all this?

CarMoney have a team of over 150 well-trained car finance ninjas who are all eager and ready to swing to your aid! Offering friendly service, getting you the best rates possible, and even finding you options for cars if you need help with that too! Why come to us?

Simplicity – We compare the UK’s top car finance lenders so you don’t have to! And we can get you approved – fast!
Impartiality – We won’t steer you towards any particular lender on our panel. 100% unbiased, we simply present great financial options to you.
Transparency – Even if the rates we get you seem too good to be true, relax, they’re not.
Efficiency – We take care of all the paperwork and pay the dealer. All you need to do is choose your new car and drive away happy.

Get in touch with one of our ninjas today on 0333 456 4550 or email [email protected]

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