Purchasing a new car is a large expense, in fact, aside from buying a home it’s probably the largest expense you’ll encounter. This is why it requires a certain amount of financial planning in order to get the best deal.

Unlike many other expenses though, there are a number of ways you can fund a new car. Throughout this article we are going to investigate the various ways of doing so and weight up the advantages and disadvantages of each of these methods:

Savings/ Cash

Arguably the most convenient way of funding a new car is to use the money you have in a savings account. One thing to take into account when doing this is; you should always leave enough in your account to cover for any emergencies (this is known as your emergency fund).


  • Often garages will be more willing to negotiate on price when you’re paying cash
  • Currently savings rates are low so now is a good time to use them to fund your new car
  • You won’t pay any interest on your purchase so its considerably cheaper than using credit in the long run
  • If you want to sell the car 2 years down the line, you can as you’re not tied into any contracts that you would be when using credit.


  • New cars depreciate at a rapid rate so if you’re not looking to keep the car, leasing may prove a more cost effective option.

Personal Loans

The rates offered on personal loans via banks, building societies and supermarkets are at an 8 year low, which is why many people are turning to them when looking to buy a new car.


  • As I outlined above, personal loan rates are very low at the moment, in fact they are arguable the cheapest source of car financing
  • Due to the introduction of the internet, personal loans can now be arranged very quickly meaning there’s very little waiting around for the loan to be processed.
  • You are able to choose a loan amount and term that suits your budget regarding monthly repayments.


  • The lowest rate loans will be reserved for those with an immaculate credit history, if you have poor credit you’ll have to pay much higher rates.
  • If you have spare cash available and you’re looking to pay off the loan early, you may find that an early settlement fee is attached to the account.

Hire Purchase

Hire purchase works slightly different to any other method of financing in that; the buyer lays down a small deposit; they then formulate a monthly payment plan to pay off the rest. However, at the half way stage (when half of the vehicles value has been paid) the buyer is given the decision of whether they want to continue paying the monthly payments or whether they want to hand the car back.


  • While the rates will not be as cheap as those offered by personal loans providers, they will still be competitive
  • Suitable for those with very little savings as only a small deposit is required (10%)
  • Breaks the payments down into affordable monthly repayments


  • You do not have full ownership of the car until the final payment is made
  • Due to the fact that you are essentially hiring the vehicle, you are liable for any damage if you choose to walk away at the half way stage.
  • The dealer may set a maximum mileage limit. Exceed this limit and you’ll face penalty fees.

Choosing your right method

Choosing the right method for you will be dependent on a number of factors; for example, if you don’t have any savings or you’re simply not willing to give up your savings, then a personal loan or hire purchase are likely to prove the best option.

If you do choose to go down the personal loan or hire purchase route, make sure that you use a comparison site in order to ensure you get the best deal. Always check the criteria prior to applying and ensure you fit every point. If you apply without checking the criteria you run the risk of getting declined which could ultimately affect your credit score.

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