buying new car

What really is the best way to buy a new car?

If you’re thinking it’s time to replace your car you are not alone. The easing of Covid restrictions means that we are able to get out and about freely again, and many of us are getting back to the reality of the daily commute. Car showrooms are also open again to welcome both serious buyers and interested browsers.

At the same time there is a shortage of new cars available for sale. A global shortage of semiconductors is reducing the supply of microchips, which is delaying the production of a wide range of electronic goods including cars.

So before you start looking for a new car, be aware that it may be worth looking at used cars as well as or instead of a brand new car. Used car sales in the UK have soared during 2021, as demand for new cars grows but fewer new cars are available.

It can also make more economic sense to buy a used car. A new car can lose up to half of its value during the first three years after production. So you may want to consider a used car instead, particularly one that is only a year or two old or perhaps an ex-demo car.

But once you have chosen the car you want to buy, what is the best way to finance it? Is it best to pay the whole cost upfront or take out some kind of finance deal?

Let’s take a look at three of the most usual options for buying a car:


Three options to buy a car

1. Cash 

If you have the funds to pay for the car up front then this is usually the simplest and cheapest way to buy your car. If you already own a car, you may be able to part exchange that as part of the deal: or you may choose to sell your existing car separately first to boost your cash reserves.

If there is a slight shortfall between the price of the car and your funds, you could take out a small personal loan to make up the difference. For example, Munzee provides online loans which could be just what you need. It could work out better for you financially to do this and pay for the car outright than to take a longer term finance arrangement on your car.


2. Bank car loan

A second option for buying a car is to take a specific car loan from a bank. Most major banks offer this kind of product.

You can only use a bank car loan for buying a car, and can only borrow an amount of money less than or equal to the price of the car. The bank will then send the money directly to the dealer you are buying your car from. You will not completely own the car – so would not be able to resell it – until you have finished repaying the loan.


3. Car dealer finance

Most car dealers also offer various finance options to purchase cars. You will usually need to pay a deposit, and if you have an existing car this may be accepted as part or all of that deposit.

The two most common finance options on offer are HP and PCP:


  • HP – Hire Purchase

Hire Purchase is a loan that splits the cost of the car, plus interest, equally over a number of monthly instalments, usually between 12 and 60 months. Once all the instalments are repaid, you own the car outright.


  • PCP – Personal Contract Purchase

Personal Contract Purchase is similar to HP but only spreads part of the cost of the car over the monthly instalments. This makes the monthly instalments cheaper but there is then a large final instalment (a “balloon payment”) you will need to pay if you want to buy the car outright. 

Most dealers offer the option of transferring what you have paid so far into a fresh PCP agreement on a new car. In effect, your monthly instalments continue but you have a newer car instead.


Leasing a car

One other car finance option to consider is leasing a car from a dealer. This is known as PCH – Personal Contract Hire. With PCH you have full use of the car but no option to purchase it.

A typical PCH contract lasts between 1 and 4 years. The contract usually includes road tax and a maintenance package as part of your monthly payment.

So if you want the convenience of having the use of a decent car but with no strings attached, PCH may also be an option worth exploring.


We hope that the above information will help you to make the best decision about which car to buy and how to finance it. 

Good luck with your search, and do visit us again here soon at Munzee Loans.