Purchasing a new car can be a very exciting time, but you will need to make a decision on the best way for your needs to cover the cost. There are several different options available, but the most common are car finance and purchasing outright. Both of these options can work for different people and circumstances, so taking the time to find out which is best for you is essential. In this guide, we will be explaining the difference between the two and highlighting some positives of each. That way, you should be able to think about which would work best for your situation.

Cash Purchase

Whether you opt to use your own savings or take out an unsecured loan to cover the cost, this option allows you to own the car outright. This means that you can do as you please with it, such as modify the car, drive as many miles as you like, or sell it. However, if you choose the loan option rather than using your savings, you will need to repay your loan plus interest. Although you may get a lower interest rate with this form of loan, the option will not be available to everyone.

If you choose to pay with your own savings, this could work out cheaper in the long run, as there are no interest or admin fees to pay. It also does not matter if you have a poor credit rating because you are not borrowing money to take out the credit agreement.

However, with this option, you will be required to have the cash you need to pay for the car straight away, which is not a feasible option for everyone. A car can be an expensive purchase, so having access to enough cash for an outright purchase may not be possible in all circumstances. If this is the case, there are many other solutions to consider.

Car Finance

With most finance agreements, you will usually need to pay a deposit upfront. This is followed by monthly repayments, either to the value of the car plus interest (in hire purchase agreements) or to the expected value at the end of the agreement including interest (in PCP agreements). Typically, the larger your deposit, the less you could have to pay each month.

A car loan can be a beneficial option as you will know how much you are repaying each month, allowing you to budget easily. You may also find that the terms are flexible to suit you, allowing you to repay between 24 to 60 months, which could be ideal if you were planning on keeping the car for a long time. This flexibility can also come along with extra security, as some finance companies offer additional support, like an added warranty.

If you have poor credit, there are also finance options available for you. There are lenders who offer bad credit solutions, so when browsing, look for lenders that focus on affordability. This means they review your financial position rather than your credit history to decide if you could afford the repayments.

However, before you search for a finance agreement, it is essential that you consider your financial position. Missing repayments could damage your credit score and you may find it difficult to get out of your contract if your circumstances change. You should be confident that you can comfortably make the full repayments each month before entering any agreements.

There are many things to consider from both purchasing methods, but it is truly down to your personal situation. Hopefully, this guide has helped you to understand a little bit more about each option and inspired you to reflect on your circumstances before making any decisions.