The Ultimate Guide to Buying a Car: Finding & Financing

The ultimate guide to buying a car in white over a toy car sat on a calculator

Buying a car can be a long, drawn-out process. It can be stressful and there’s always the worry that you haven’t got the best deal.

Is this car right for me? Is the mileage correct? Am I being ripped off?

These are all valid concerns when you’re buying a car. If you’re in the market, but don’t know where to begin, we’re here to help! We’ve created a two-part ‘Ultimate Guide to Buying a Car’, designed to guide you through the process and get the very best deal.

Today, we’re going to cover the first few steps of the car buying journey. We’ll lay out your options when it comes to car finance, car insurance and where to buy a car from. First of all, we’ll provide some general information about how to find the perfect car for you.

 

What to consider when buying a car

Before you even think about buying a car, you have to know what you want. New or used? Is there a specific make you’re looking for? Engine size? Number of seats or doors? Is comfort or ride quality important? Boot space? How many miles will it have done? Any optional extras you must have?

That’s a lot to consider. Before you begin the search process, make a list of what you want. That way, you can avoid the confusion thousands of new and used car options bring. It also helps you be picky and narrow down your search until all that remains is the perfect car for you.

Most importantly, you must set a budget before beginning shopping. How much can you afford to spend on a car? If you’re planning to pay it off monthly, what repayments can you afford? What’s your budget for insurance and fuel costs? Can you afford these repayments on top of all your other expenses?

Add all this onto the list. If you start looking with a rigid idea of what you want and can afford, you have a greater chance of success. Plus, you’re less likely to be stressed out by money problems later down the line!

Once you have your budgets, stick to them! Don’t get carried away while shopping and splash out on a new car that you can’t afford, and so can’t enjoy.

 

row of cars lined up next to each other in dealership forecourt
There are many options when buying a car. Make sure you know what you want before you start so you don’t get lost!

 

Now you know what you’re looking for, you need to consider how to pay for it.

 

How will you pay for your car?

There are a range of options to finance a car. It’s worth bearing in mind that not every car buying avenue accepts every form of car finance. If you already have some idea where you want to buy your car, make sure you study your finance options carefully. We’re going to cover where you can buy a car next, so look at these two sections at the same time!

 

Personal Loan

All car finance is linked to your credit score, but none more so than securing a personal loan. Banks and building societies are unlikely to lend you money if you have a poor credit score because you might not be able to afford the repayments. There are plenty of credit score apps to check yours and work out whether it’s worth applying for a loan. Plus, many banks and building societies now offer ways to check whether your loan will be accepted before you apply.

Choosing a personal loan brings some benefits. Unlike other finance options, you own the car while repaying the loan and don’t have to hand it back at the end of your agreement. There are also no mileage restrictions (more on this later) and you pay a smaller deposit upfront.

However, there is always caution against loans. You’re tied into the agreement for between 1 and 7 years, and many loans include high monthly repayments and interest rates. Plus, missing repayments can lead to poor Credit Score, issues securing future loans and falling into debt.

If you choose a Personal Loan, make sure you’ve factored in all future expenses and enter the agreement confident that you can pay all the money back.

 

representation of car finance options associated with buying a car
Car finance is confusing and there are lots of different options. That’s why it’s important to choose the right option when buying a car.

 

Personal Contract Purchase (PCP)

This is the first finance option many larger dealerships offer when buying a new or used car. It’s complicated, but we’re going to break it down as simply as possible.

With PCP Finance, you pay an initial deposit on the car and then fixed monthly payments over an agreed period of time. The first step towards securing PCP Finance is passing a Creditworthiness Assessment.

This checks two things: how well you can afford the monthly payments, and your credit risk. This is the chance of you not paying your PCP Loan back (i.e. you have previous outstanding finance, a poor Credit Score, significant debt).

If you’re looking at cars you can afford, you should have no trouble passing this check. Once you have, you can put down an initial deposit. This is usually 10% of the vehicle’s value – but the larger deposit you can afford, the better it is in the long run! Then, you can use the car.

 

Mileage Restrictions

PCP Finance comes with one caveat. Your must follow the strict yearly limits as part of the agreement. Generally, this is 10,000 miles a year.

If you have a high yearly mileage, PCP Finance may not be the best option. There are additional charges at the end of your agreement for excess miles and, while this may only be a few pence per mile, the cost can quickly rack up!

 

At the End of Your Agreement

PCP Finance lasts between 2 and 4 years, and you can use the car until the contract ends. At that point you have three options:

  1. You can return the car. This means that you don’t have to make any more payments, and there’s no clauses tying you in to another agreement.
  2. You can pay the resale value and keep it. Known as a Balloon Payment, this is based on the estimated value of the car, minus what you’ve already paid off during the agreement. This payment will be much larger than the monthly payments, so you will need to consider how you’re going to afford it. However, the larger the deposit at the start of the agreement, the lower your Balloon Payment will be.
  3. You can use the resale value as a deposit for another car. If you’re not interested in keeping the car after the agreement, you can pay the Balloon Payment for this car towards another vehicle and enter into another PCP agreement.

Other things to consider with PCP Finance

  • You’re likely to pay more than with other types of finance. Make sure you’ve taken this into account.
  • You can cancel a PCP Agreement – but you must have paid half of the total cost to do so. Cancelling also means that you lose the car.
  • You might not be able to drive the car abroad. Check the terms and conditions of your agreement before planning travel.
  • Excessive wear and tear also brings extra charges at the end of the agreement.
  • There could be an additional purchase fee when you begin the agreement.

 

Looking for advice about driving abroad after Brexit? Check out our guide all about travel to the EU!

 

Personal Contract Hire (PCH)

If you’re not planning on buying the car at the end of the agreement, PCH Finance may be a better option for you because it’s cheaper than PCP Finance. However, you never own the car as it’s a form of car leasing. Here’s how it works:

  1. Pass a Credit Check and pay three months’ lease upfront, like the deposit process for PCP. However, companies offering PCH Finance might not check if you can afford the repayments on top of all your other expenses. You must do this and ensure you can make the repayments throughout the agreement.
  2. You use the car. Again, the mileage restrictions and extra charges for exceeding them apply. Unlike PCP Finance, servicing costs and car tax are included with PCH Finance. You only pay for fuel while you’re using the car – saving you some money!
  3. Return the car at the end of the agreement.

Other things to consider with PCH Finance

  • You have to pay to end the agreement early. Unlike PCP Finance, there’s no option to cancel once you’ve paid part of the cost. This makes leaving because you can’t make your repayments difficult.
  • You must return the car in good condition or there are other extra charges. No form of damage is allowed, so you’d have to pay for repairs one way or another.
  • Many private sellers won’t offer finance options, so your options may be more limited if you choose this route. The same goes for PCP Finance.

 

Hire Purchase (HP)

If you’re looking to buy a slightly more expensive car, but don’t have the savings to buy it outright, HP Finance might benefit you. You own the car outright after making all the repayments, and you have far more consumer rights than with other finance packages. Here’s how it works:

  1. The dealer performs the necessary Credit Checks and offers you an HP Agreement.
  2. You pay a 10% deposit upfront and then fixed monthly instalments over an agreed period.
  3. You drive the car as much as you want. There are no mileage restrictions – so no extra charges at the end of the agreement!
  4. Once you’ve made the final repayment, you become the sole owner of the car.

Your Consumer Rights

Once you’ve paid half the cost of the vehicle, you may be able to return the car and make no further repayments. If your circumstances change and you can no longer afford the repayments, this is a useful ‘get-out’ clause. Check your contract’s terms and conditions to see how this applies to you.

What’s more, once you’ve paid 1/3 of the total amount, the lender can’t repossess the vehicle without a court order. This gives you some protection if your payments are a little late or you struggle for a couple of months.

 

While HP Finance sounds like a great option to get your dream car, make sure you can afford the monthly repayments before entering an agreement. You’re paying off the full value of the car, so the cost is usually a lot higher than other finance options. The loan is also secured against the car, so missing repayments can lead to the car being repossessed.

Other things to consider with HP Finance

  • Individual dealerships set up this Finance Agreement, and the best rates are for new cars. This means you might not be able to secure HP Finance if you buy a used car or go through a broker.
  • As you own the car outright at the end, you have to pay for insurance, fuel, maintenance and other expenses while you own the car. Be sure you can afford this.
  • You can’t sell the car until you’ve paid off the full value. This means you have to settle any outstanding finance before you can sell the car privately.

 

Leasing (Long-term rental)

In essence, you drive a car that you want without worrying about the resale value or large deposits at either end of the agreement. You make fixed monthly payments to rent the car for an agreed period of time and number of miles.

Other things to consider with leasing:

While leasing may seem like a cost-effective car buying option, there are a lot of restrictions with the agreement.

  • Like PCP and PCH Finance, you’re restricted by mileage. And, as there’s a 10p per mile charge at the end of the agreement, don’t under-estimate your yearly mileage!
  • You can’t modify a leased car. This includes fitting a towbar or roof box. If you need these options, ask the leasing company to fit them before you begin the agreement.
  • There may be charges for travelling abroad and you may need to ask permission from the leasing company every time. If you’re a frequent traveller, leasing a car might not be a great option.
  • You can return the car once you’ve paid half the cost – but there may be an extra charge to do so.

 

Credit or Debit Card

The easiest option is to buy a car using your savings, either on a Credit or Debit Card. This is the payment method of choice for many private sellers, and auctions and used car dealerships often accept card payments as well. However, you should always check with the dealership before agreeing to buy the car. New car dealerships may not accept either of these payment methods.

Consumer Rights:

Buying a car with a Credit Card gives protection on the full purchase cost. You’re protected by the Consumer Credit Act and Credit Card Payment Protection (CCPP) scheme.

The Consumer Credit Act means the credit card company will have equal responsibility with the seller if they sell faulty goods or fail to deliver the goods. It also covers a misrepresentation of your purchase, with added protection for payments between £100 and £30,000.

 

brown leather wallet on a table with credit and debit cards sticking out
You’re better off using a credit or debit card when you buy a used car because it offers extra protection – and you don’t have to worry about finance repayments!

 

If you’re buying on a Debit Card, you must have all the money in your account to pay the full cost. This includes any buyer fees if you’re buying at auction. There may also be a daily spending limit imposed on your account. Banks do this to prevent large fraudulent payments if a card is lost or stolen. If yours has one of these, ask if they can waive it for a one-off payment and explain why.

Other things to consider when using a Credit or Debit Card

  • You receive CCPP even if you don’t make the full payment on a credit card. As a result, it’s worth paying a small amount on a Credit Card first and then the rest on a Debit Card.
  • Must be able to afford the monthly repayments on your Credit Card, if you choose to pay the full amount this way.
  • Ensure you have enough savings left over to cover immediate problems, either with the car or another aspect of your life.

 

Summary

There are plenty of car finance options, but not every option works for every driver. Most importantly, remember that you must be able to repay all costs every month, including running costs and other bills and expenses. Plus, if you can pay a larger deposit, the monthly repayments will be lower and more affordable!

 

How to find where to buy a car

Now that you know how you’re going to afford your new car, it’s time to work out where you’re going to buy it from.

Buying at a car auction

Car Auctions can be a risky way to buy – but you can also snap up an absolute bargain if you’re safe and sensible! It’s a fast, easy and rewarding way to buy a car and there are plenty of used car auctions across the country. Find your nearest one and follow these five top tips to get the best deal:

  1. Get to the auction early. You can browse the auction lots several hours before they go under the hammer, as well as beforehand by finding the auction catalogue. Don’t be afraid to poke and prod while searching either!
  2. Do your research. Does the car have the right documents? Is the auction price similar to what a dealership would charge? If something seems wrong, it’s best to steer clear.
  3. Set a budget and stick to it. Don’t get caught up in a bidding frenzy and be prepared to walk away if you can’t afford the car.
  4. Factor the buyers fee into your budget. Every auction house publishes their fees online, so make sure you’ve read them before the auction.
  5. Look for a car in good condition. You want to buy something reliable and not an old banger that’s on its last legs, especially as there’s no option to test drive it!

 

Now you know where you’re going to buy your next car, and how you’re going to afford it, you need to know how to get a good deal. Check out part two of our ‘Ultimate Guide to Buying a Car‘ to find out!

 

Buying through a private seller

This is a more risky way to buy a used car because you have far less legal protection if something goes wrong. Make sure you meet the seller in person, ask to see all the proper documents and don’t be afraid to walk away from the sale if something feels wrong.

While buying privately can be problematic, there are some great benefits to doing so.

Pros

Cons

Cheaper than buying the same car from a dealership

 

Can’t part-exchange your existing car

 

Likely to negotiate a big discount on top of that

No car finance plans. You have to arrange your own loan if you need a finance package

You can meet the previous owner and get a feel for the car’s condition and usage

Car doesn’t come with a warranty, unless it still has the manufacturer’s one

Fewer consumer rights. Car only has to be roadworthy and ‘as described’.

You have no course of action against a faulty product if the seller hasn’t done anything wrong

 

Buying at a franchise or independent dealership

Choosing a car dealership is your best option for a used car because they have plenty of choice and are trustworthy. The prices are fair, you always get the option of a test drive and many offer finance packages.

 

Pros

Cons

Stronger consumer rights

Higher prices than buying privately

The car is likely to come with a warranty, and could have manufacturer’s warranty as well

Need to know how to negotiate to get the best deal

You can part-exchange your existing car and get a discount off the price

The warranty the dealership offers may be slightly restrictive

Greater chance of finance options

Poor reputation and perception, even if many are honest businesses

Dealers inspect and repair major faults before selling the vehicles

You can negotiate the price based on the condition

You can get an even better deal at the end of the month if salespeople are struggling to hit their sales targets

If you’re looking to buy a used car, consider both options and decide on the best one for you. Always shop around and create a shortlist of cars before making your final decision. Never take the first deal you find.

 

different coloured cars parked in two rows on a used car dealership forecourt
A dealership is the best option for buying a used car because they have so much choice and a range of finance options.

There are different options for buying a new car.

 

Buying at a dealership

This is the most popular option. There are plenty of dealerships across the country and you deal directly with the manufacturer. However, there are still a few drawbacks.

Pros

Cons

Strong consumer rights

Might get more money for your current car if you sell privately rather than part-exchanging

Face to face customer service

Need to know how to negotiate to get the best deal

You can part-exchange your existing car and get a discount off the price

Pre-registered cars so you’re unlikely to get new car replacement insurance unless the car is written off in the first year

You always get to test drive the car before buying

Expensive as you’re paying full price

Offer the widest choice of cars and can fit them to your exact specifications

Dealerships are local and easy to contact if you have any problems

You can get an even better deal at the end of the month if salespeople are struggling to hit their sales targets

 

Buying through a broker

Brokers claim they can offer up to £5,000 off the list price of a new car. They don’t have to worry about commission and manufacturers’ give them discounts for selling target volumes, which is why they can offer these savings. However, they’re mostly online which brings a wide range of problems in itself.

Pros

Cons

Huge savings available

Almost always online so it’s difficult to get problems sorted out

Can find a wide range of models and optional extras in the listings

Unlikely to be able to part-exchange your current car

A new car delivered straight to your door

Don’t have every model or optional extra available. Restrictive.

No haggling and no need to negotiate to get the best price

No face-to-face service

Can’t test drive before you buy

 

Sorting out insurance before buying the car

Now that you’ve decided how you’re going to pay for the car and where you’re going to buy it from, you’re ready to start shopping! And that includes shopping for car insurance.

Loyalty doesn’t pay when it comes to insurance. Always ask your current insurer for a quote on any new car, but make sure you shop around on online comparison sites before making a final decision. Some cars may be more expensive to insure than others, which could affect whether you can afford them or not. Here are our top tips for securing the best insurance deal when buying a car.

  1. Insure the car before buying it. Make sure your policy starts the day you collect it, otherwise you could be driving it home illegally.
  2. When changing car mid-policy, make sure your insurer knows about the change. It’s easy to transfer a policy onto a new car and not doing so can lead to any claim being rejected because of an invalid policy.
  3. Ask about any admin charges to change providers mid policy. If it’s expensive to cancel your policy and change to a cheaper option, check how long your policy has left to run. Buying a new car around your renewal period makes it easier for you to save on your car insurance.
  4. Always look for fully comprehensive cover. If you’re spending thousands of pounds on a new car, you don’t want to be out of pocket if something happens to it that wasn’t your fault!

 

damaged car headlight after an accident
The last thing you want when buying a used car is an accident right away, but it’s even worse if you didn’t sort the insurance out first! Photo by Clark Van Der Beken on Unsplash

Where to go next?

Now’s the time to start shopping for your perfect car! This article should have helped you lay the framework for a successful car buying experience. Next week, we’ll help you through the shopping and negotiating stages, including our definitive Do’s and Don’ts when Buying A Car. Don’t miss it!

 

Recap

Finding and financing a car can be hard. Even so, if you follow these three top tips, you should be in a great place to find the best deal on your next car.

  1. Set a strict budget right at the start, including monthly expenses such as insurance, fuel and finance repayments.
  2. Many private sellers don’t offer finance packages and many dealerships don’t offer Debit or Credit Card payments. Make sure you can pay the way you want to.
  3. Many finance options include mileage restrictions. Estimate your yearly mileage accurately and before you sign any agreement.
Drew Hickman

Drew Hickman

Drew works for BookMyGarage writing blogs, website content and almost everything else in between. He works closely with ex-mechanics and subject matter experts. When he’s not helping you save money on running your car or making your driving life easier, he can be found either with his head in a book or with a golf club in his hands (usually looking for his ball in the woods)