Is car finance worth it?

Roman Danaev

13 April 2022

When it comes to high-value items like cars, not everyone has the money to pay for a product outright. As a result, many people ponder whether or not it is worthwhile to finance a car.

Most new-car purchases in the United Kingdom are now financed through loans, thanks to the variety of loans available with low-interest rates.

In light of all this, is car finance worth it? There are several factors to consider to ensure you get the best finance deal possible.

When is car finance worth using?

Getting a car on finance is a popular option because it eliminates the need for large down payments on a new or used car. In the following cases, you might want to explore car financing:

If you require a car but lack the financial resources to purchase one outright

There are many ways to get a car on finance if you don't have the money or resources to do it all one go. There are a wide variety of financing options for purchasing a car that will allow you to stretch the total cost of the vehicle over a period of time. A deposit is often required for any type of finance, but it’s more manageable than paying for a new automobile outright.

It's possible to acquire a more luxurious and better quality car through financing than you would have otherwise been able to afford if you took out a loan. It's important, though, to make sure that your monthly payments are within your means.

If the loan repayments are within your means

You'll need to demonstrate to a lender that you'll be able to afford the monthly payments on a car loan with your normal salary. It's a viable option to own a car outright if you're content with the work you're doing and have enough money to spare elsewhere.

Having a clear idea of how much money you have available to spend on car repayments can help you make an informed decision. It is possible to identify whether or not vehicle financing is a viable choice for your situation based on this information.

If your best option is a car finance deal with a low-interest rate

The interest rate charged by a provider is a significant consideration because it lets you know the total amount you'll end up paying. If you have a good credit score, you'll be eligible for the best interest rates.

Perform a finance plan by investigating your options and obtaining a personal loan by comparing rates from several lenders. People with less-than-perfect credit scores may find car financing more affordable than an unsecured personal loan because of the vehicle's value as collateral.

If you like to switch your car frequently

Cars depreciate in value over time, so if you buy one outright, you'll incur losses if you decide to sell it shortly after buying. It is possible to return the car at the end of a personal contract purchase (PCP) car finance agreement. A new PCP deal on a new vehicle can then be arranged.

It is possible to return a vehicle at the end of the hire purchase (HP) agreement, but this option is more commonly used by persons who ultimately plan to own the car.

Leasing a car is also an option, although it's better suited to people who wish to switch cars frequently. Personal contract rental allows you to upgrade your car regularly because you can't own it and must return the vehicle at the end of the term.

When is car finance not worth it?

The following instances explain when it may not be worth obtaining car finance.

If buying a car outright is within your financial means

If you plan to retain your car for a long time, purchasing it outright is the most cost-effective alternative. For one thing, you don't have to worry about paying a single pound in interest on the purchase of the car.

If a bank has given you a personal loan at a lower interest rate,

Those with stellar credit scores can get the best loan rates. You can save money on personal loans if you have a solid credit rating and can get the best interest rates on the market. A free eligibility checker can give you an indication of the rate you'll be offered. These won't affect your credit score, but they might offer you an idea of the expenses you'll incur and the loans you'll be able to secure.

If you want to be the owner of your car from the beginning

Your car will remain the property of the lending company even if you eventually take legal ownership of it. A car loan may not be the best option for you if you want to buy your vehicle from the start. Instead, you’d be better off using your funds to purchase the car or obtaining a personal loan.

It is also possible to customize or sell your car whenever you want when you own it. You won't be bound by restrictions like mileage caps that come with a car loan.

If you might not be able to keep up with the monthly payments,

When applying for a loan, you must be certain that you will be able to pay back the money that you borrowed. Defaulting on one or more payments lowers your credit score, and the finance company may seize and sell your vehicle.

If you're worried about making payments on a car loan because your financial situation might change, it's probably not a good idea to take out a loan. Even though you can cancel vehicle financing, you should only apply for finance if you are convinced that you can afford to repay it.

You can lower your monthly payments by choosing a lower-priced automobile, increasing your deposit, or adjusting the length of your loan to see if it makes car financing more economical and realistic.

Pros and Cons of car finance

The following are the benefits and drawbacks of getting a car on finance.

Benefits of car finance

  • With car finance, you don't have to wait to buy a car like you would if you saved up for it. It's immediately available to you after signing the agreement, but you may not own the vehicle based on your agreement.
  • Many people choose to use car financing to spread out the cost of a car purchase. Paying in instalments means that you'll have an easier time getting an even better car than you would with one large upfront payment.
  • Getting a car in accordance with the cheap and flexible terms of car finance is a great option. One to five-year terms are available, and if your deposit is big enough, you could be eligible for an interest rate that is as low as 0%.
  • If you have a low credit score but need a car for work or other reasons, you may want to consider hire purchase (HP). Based on the car as collateral, people with poor credit ratings can secure financing.
  • Personal contract plans (PCPs) may be a good option if you frequently change your vehicle and want to keep up with the latest technology.

Drawbacks of car finance

With car financing, you are tied to a monthly payment plan. You could lose your car if your financial situation worsens and you are no longer able to make your instalments.

Hire purchase and PCPs don't give you ownership of the vehicle until you've paid off the loan. Because you don't own it, you can't modify it or sell it without your lender's permission.

If you have a poor credit history, the interest rate you pay each month will be much higher.

What to consider when applying for car finance

Before you make a car loan application, ask yourself these six questions.

  • Are the monthly payments realistic for me?
  • Is my credit score sufficient?
  • Is it time for a new vehicle?
  • Is it worth it for me to acquire a car if I don't use it often enough?
  • Do I have a history of causing damage to cars?
  • Is this the right arrangement for me?

Is financing a car a good idea? contact our brokers

As car specialists at Carplus, our mission is to help people in every corner of the country with their questions regarding car finance. Contact one of the Carplus brokers today, and they'll be happy to help you clarify whether financing a car is a good idea for you.

Car finance calculator

Must be between £3,000 to £50,000
Your monthly payment
Total charge of credit£0
Total amount payable£0
Apply now for your personalised, no-obligation quote