Buying a car can be a stressful process, beset with complications.
Firstly, you must identify a car, but that’s just the start if it’s from a dealer. You’re likely to have it checked by a mechanic or by yourself if you know a bit about cars. Then there are the pre-purchase checks that have become routine in the process, looking for outstanding finance on the car and ensuring it has a clean history.
Indeed, buying a car is perhaps one of the most stressful things you can do outside of buying a house – you’re making a purchase you will rely upon every day, but from an industry that has suffered greatly from stereotypes and fear. Everyone had a horror car purchase story, from just picking up a problem car to being outright ripped off by a seller.
Luckily, you’re far more protected now than ever before. Twenty years ago, if you wanted to buy a used car, you would usually withdraw a bundle of cash and pay for it outright with no comeback. Things have certainly developed, and most dealers now offer a much more robust set of payment options, not least because used cars have risen in price. The more expensive a car is, the less likely you are to turn up at a dealership with the required funding stuffed into an envelope.
Here are the most popular methods of car purchase in the UK today.
Cash or Card
Cash is still king, but just not in the traditional manner. If you were in a position to buy a car outright, then you wouldn’t carry the notes to a dealer; instead, you would likely pay by card. There are two methods of card payment, credit card and debit card. Your local dealer should accept both; it’s a given that most small businesses offer card payment services. This tends not just to be for the full amount of the car; often, you’ll need a deposit and, therefore, will be required to pay by card.
It’s unlikely you’ll be purchasing a £15,000 used car on a credit card, as there will be better options available, but if that purchase required a £250 deposit, then a card payment is the accepted industry standard. Of course, you could pay cash for such a small amount, but you’d need to know the value before entering the dealership.
Finance
Buying a car on finance is the most obvious option for many people. This would involve you borrowing the full amount for the car and then paying it off over an agreed period, such as three years. Generally, you’ll pay more than the car’s value for taking such an option, thanks to interest on the loan, but it is a method of obtaining a car of greater value than your cash flow allows.
These purchases are usually covered with different levels of protection as consumer credit is a heavily regulated industry, but there are risks. For instance, you might have a change in circumstances over the period of the sale, but you must keep up payments; otherwise, you could lose your car. Often, finance deals come with a degree of insurance to protect against missed payments through ill health and such.
PCP
Personal contract purchasing, known as PCP, is a step beyond financing; it’s a method of buying a car beyond your means, even with finance, and paying for it over a period, perhaps three years. The twist is that at the end of the agreed term, you may have a lump sum to pay if you wish to keep the car. Many buyers transfer equity in the car over to another PCP loan, effectively making the process more like a lease.
PCP loans have accounted for a huge percentage of the used car market; an estimated 80% of new car purchases were made this way before 2022. However, the current economic climate has pushed up interest rates, making repayments harder to afford, and more buyers than ever are opting to keep their cars at the end of the agreement, paying off the lump sum (which can be several thousand pounds) with a loan.
