What are your options

Your options

How to pay for your car is a big decision, and you will have several options to choose from. From paying cash, to getting a personal loan or buying a car on finance, there are many possibilities. Before you start to look at cars, work out how much you can afford to spend. This saves you time when you go online or to a dealership, as you know exactly which cars you can afford and which ones you can’t.

There are four main ways in which you pay for your car:

  • Personal contract plan (PCP)
  • Hire purchase
  • Personal loan
  • Cash or savings

PCP

Pros

Low monthly repayments

Small deposit

Quick and easy to arrange


Cons

Mileage and condition of car affects the costs

Total amount paid may be more than with hire purchase

Have to pay the outstanding balance to keep the car

You don’t own the car until the final payment

Your credit rating will be affected if you miss repayments

PCP is a type car finance deal similar to hire purchase and tends to result in lower monthly repayments.

You pay a deposit, usually between 10%-30% of the price of the car. If you already have a car, you can trade this in for part or all of the deposit, depending on its value.

You agree the monthly repayments, usually spread out over a term of between three to five years.

You agree the Guaranteed Minimum Future Value (GMFV) of the car, based on the estimated annual mileage and the condition of the car at the end of the agreement.

At the end of the agreed term you can either:

  • hand back the car to the dealer and pay nothing
  • trade the car in and start all over again with another PCP agreement
  • pay the GMFV price of the car and keep it

Learn more about PCP 

Hire purchase

Pros

Quick and easy to arrange

Small deposit

Competitive fixed interest rates

Cons

You don’t own the car until the final payment

Tends to be more expensive for short-term agreements

Your credit rating will be affected if you miss repayments

Many ‘car finance’ deals offered by garages, and some offered by lenders, are hire purchase agreements. You may find it convenient to enter into a hire purchase agreement arranged by the garage, as the garage can arrange your finance while selling you the car. This saves you having to go to your bank, building society or credit union to arrange a personal loan.

The important difference between hire purchase and a personal loan is that with hire purchase, you don’t own the car until you have made the last repayment. Only at that time will the ownership of the car pass to you. This means you cannot sell the car if you run into problems making your repayments.

With hire purchase you will usually have to pay a deposit of 10% of the value of the car. You then pay the rest of the value of the car in instalments, over a period of between three to five years. In this way, you are essentially hiring the car until you make your final payment, after which time you own it.

The loan is secured against the car, which is why you don’t own it until you’ve made your last payment. It is important to make sure you understand the terms and conditions of your hire purchase agreement before signing the contract.

Learn more about hire purchase

Personal loans

Pros

Can cover the whole cost of the car but doesn’t have to

Can get a competitive fixed interest rate if you shop around

You own the car immediately

Cons

There may be a wait for you to get the money

Your credit rating will be affected if you miss repayments

You can get a personal loan from a bank, building society or credit union as long as you have a good credit rating.

If you decide to borrow, use our personal loan comparison to see where you can get the best value loan and how long it will take you to pay it back. You can also use our loan calculator to work out the repayments on loans of different amounts. For example, the cost of credit can vary by several hundred euro between different providers for a €12,000 loan over three years. Aim to pay off the loan before you expect to get rid of the car, so you are not paying the loan back after the car is gone.

Use our budget planner to work out how much money you have left over at the end of each month based on your current income and think about if you can really afford a car loan. Try to be realistic with your repayments so that you are not leaving yourself short each month. Remember, you will also have ongoing costs for fuel, tax, insurance and servicing.

Learn more about personal loans.

Cash or savings

Pros

You avoid paying interest

Cheapest way of paying for a car

You own the car immediately

You may decide to save up for the car. If you do, make sure you are getting the best rate on your savings by checking out our regular savings account comparison. Saving up is the cheapest option as you do not have to pay interest on a loan. Interest rates from different providers can vary depending on which savings account you choose, so make sure you compare rates before you open an account.

If you don’t have enough savings to buy the car outright, you could put the money towards a deposit.

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