Buying a car is no easy task. After all, it’s most likely going to be your main method of transport and will be used most days of the week. Therefore, not only is it important to ensure that the car your buy has ‘the right feel’ and issues such as fuel consumption, running costs and annual car tax are compatible with your budget, but the way you pay for the car is the right method also.
Of course, with used cars, the buying process is now a lot more straightforward than the options available to those buying new cars. You can pay with cash, credit or debit card or arrange credit repayments with the dealer or individually, as well as having the option to part exchange your older vehicle. The Citizen’s Advice Bureau has a very handy guide listing the methods you can use to buy a used car.
However, buying a new car can be a lot more complicated, particularly if you opt into a car finance scheme. The schemes are very popular, evidenced by Credo who provide numerous financial services, one of which is car finance in Norfolk. Credo revealed that they financed 516 car purchases in 2013, totalling some £8.7 million, which reflects the upturn in the car economy; 2.2 million 2013 models were bought in the UK – 200,000 more than 2012 and the highest total since 2007.
One popular way to buy a new car is through a Personal Contract Plan (PCP). Under this scheme, you pay a monthly fee on top after putting down a deposit and pay the residual value on a car, i.e. how much it will be worth once the contract ends. You pay the difference between the value of the car now, and the value of the car at the end of your PCP contract. The Telegraph ran a case study of a PCP on a Dacia Duster worth £8995 and found £99 a month PCP could soon transform into a fee of £223 a month over four years. This is due to the need for a £3112 deposit, £4752 in monthly payments and an extra £2063 at the end of your contract if you want to own the car outright. This produces a grand totally of £10,715, almost £2000 more than the original value of the car!
For this reason alone, buyers should be wary of PCP’s and hire purchase schemes are similar to phone contracts in that you pay a monthly fee for a set number of years and the car is yours once the time is up. PCP’s carry the hidden, but optional, cost of buying the car from the dealer once the contract expires. On top of this, because PCP’s have to ensure the car has a guaranteed future value (GFV), buyers’ may be prohibited by the number of miles they can drive per year, with a financial penalty if they go over this limit.
Choosing the right car is almost as difficult as choosing your payment plan and you should devote just as much research to that aspect of the buying process as the car itself!