Choosing car finance vs buying a car outright


Car finance has become one of the most popular ways of gaining access to a new vehicle. But what is the difference between choosing car finance vs buying a car outright? We explain the pros and cons of both below

Why buy a car using car finance?

Car finance is an affordable route for thousands of people in the UK who otherwise would not be able to afford to drive a car. It works as a cost-effective way for people who are unable to save to have access to a car for use with their work and personal lives.

Finding the money to pay for a car outright is difficult for many – especially in this tough economic environment. But if you can spare between £50 – £100 a month there is a good chance you will be able to secure a car finance deal, supporting you with things like getting to work, doing the monthly shop and dropping the kids off at school.

Depending on your budget, finance deals often increase your chances of getting a better car compared to using cash. The monthly payments are spread evenly across a fixed amount of months, so you can plan and manage your budget upfront.

Another positive thing about taking up a car finance deal are the maintenance options. Basic maintenance and breakdown callout services are often included or available for a small additional cost, as are standard insurance options. This can save you a lot of money over the course of a 2-5 year contract.

Unlike leasing, you do not have to worry about the car’s value depreciating. Instead, once you have made the last payment you own the car in full and can do as you wish with the vehicle from that point.

Are there any disadvantages to using car finance?

It is important to ensure you maintain the agreed payment schedule as defaulting can have a negative impact on your credit score. There are also instances where non-payment could lead to the car being repossessed.

The finance company are the legal owners of the car until the last payment is made, however, as long as the payments are maintained throughout the contract you can drive the car as if it was your own without worry.

You may have additional fees to pay at the end of the contract if you have exceeded the agreed mileage limits or if there is excess wear or tear. This is why it is important to be realistic about the amount of miles you will cover and to take care of the car during the contract period. If you notice any issues with the vehicle you should inform the finance company as soon as possible so it doesn’t deteriorate and potentially cost you more down the line.

Why pay for a car outright?

Purchasing a car does have some advantages. Instead of paying off the amount over a fixed period of time it’s a one-time transaction. You go to pick up the car, pay by cash or card and you are then the full owner from that moment onwards.

All the other usual details will also have to be arranged, such as insurance, tax, fuel and maintenance, which is a little different to car finance, as some of these are included in the package.

Having a one-off payment also means you can start saving for your next car or any other significant purchase right away. If you want to sell or trade in the car at any point you won’t have to wait for a contract to end, instead, you can do this any time you want.

What are the disadvantages of buying a car outright?

One of the biggest issues of buying a car is dealing with their fast depreciation. Only limited edition or classic cars tend to be the exception to this rule, with standard vehicles losing anywhere between 50 – 60% of their value within the first few years of ownership.

This means that by the time you come to sell the car it will be worth a lot less than you paid for it. If you’ve owned it for more than 5 years and clock up over 12,000 miles each year, you should expect to lose a good amount of money.

Maintenance is also a factor to consider, as you will be responsible for paying for any breakdowns, repairs, MOTs and general maintenance. This is something that can be included in car finance packages.

Buying a car upfront also means depleting any savings you may have. It will probably take a bit of time to build this back up again and could you leave you short of an ‘emergency fund’ if you need to access money in a hurry.

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