Buying a car – what you need to know

If you’re on the hunt for a new car, we’ve got the low-down on the practicalities of car-buying, as well as the finance options available.

For many, buying a new car is exciting, but it can also be an overwhelming experience. There’s a lot to consider, and now social distancing is involved, we have more questions than ever.

Can we take a test drive? And what are dealers doing to keep us safe? We discover the answers to these burning questions and more.

Please note this article is correct at time of writing. Please check the Government website for updates on social distancing.

What’s your budget?

Before you start car hunting, compare your monthly income and outgoings to see how much room you have left in your budget. Any extra funds could go towards car finance, for example. 

Don’t forget to factor in running costs too, such as car insurance, petrol, services, MOTs, road tax and repairs. Even though you won’t be paying for services and MOTs on a monthly basis, it’s best to save up for when they do come around!

Where can you buy a car?

You can buy a car from lots of different places, including car dealerships, auctions, private garages, brokers, and even private sellers - online or in person. Consider the pros and cons of each, to choose the right option for you.

What are dealerships doing to keep us safe?

Car dealerships have been asked to make many changes to keep their showrooms safe, including (but not limited to): 

• Creating one-way systems for entrances and exits
• Maintaining social distancing (keeping 2 metres away)
• Installing plastic screens 
• Providing sanitising hand gel 
• Disinfecting and ventilating vehicles
• Removing children’s play areas, magazines and vending machines

Can you take a test drive at the dealership?

Taking a car for a spin is one of the best ways to find out which one is right for you. Luckily, the DVLA says you can still take test drives. You must be on your own, without a salesperson in the car. 

The dealer must use registered trade plates and have full insurance. They may restrict the cars available for a spin, as well as the amount of time you can spend behind the wheel. 

What type of car do you want/need?

There are lots of factors to think about. If you’ve got a generous budget, you’re more likely to go for a car with added extras. If you have a limited spend, you might want to focus more on your list of needs. Do you really need heated seats or alloy wheels?

Weigh up if you need a brand-new car. If you do, check which cars depreciate the least once they’re driven off the forecourt. If you don’t, you could go for a cheaper, older model.

Look for wear and tear, and feel free to haggle down the price if it’s not up to scratch. Don't be afraid to say no and walk away - make the sales rep sweat.

If you don’t need a car with five doors, you could get a three-door version instead. These often come with smaller price tags and will save you a bit of money. Think about the engine size too.

If you’re only using your wheels to get from A to B, you could pick one with a smaller engine. Not only will you save money on the overall price, but it could also keep petrol and insurance costs down too.

Then you need to choose between petrol, diesel, electric or hybrid. Whilst diesel cars are often more fuel-efficient than petrol, you can end up paying more at the pump per litre. So you need to weigh up which will save you the most money in total. 

Electric cars are better for the environment and electricity is cheaper than fossil fuel. They are more expensive to buy than other cars, but they can be cheaper in the long-run due to lower running costs. This depends on your specific car and mileage. 

Ask questions about the car 

Whichever route you go down - it’s important to ask questions before you buy. You need to know what you are getting for your money. Here are some examples of standard questions you can ask: 

A new car

• Which version do they think suits your needs best?
• What features come as standard and what are extra?
• How long does the manufacturer’s warranty last for?
• Does the dealership offer an additional or extended warranty?

A used car

• Does the car have a full-service history?
• What checks have the dealership done on the car?
• How many previous owners has the car had?
• Does it have any modifications? This can affect your insurance.
• When is the next service and MOT due?
• Is there any warranty left?

 

What is the best way to finance buying a car?

There are many ways to buy a car - it can feel like a minefield. Always keep your budget in mind. Remember if you buy an old car it’s more likely to need repair work sooner, which can be costly.

Plus, you have to pay for an MOT every year on any car that’s three years old or over. This is on top of running costs like petrol, insurance etc. 

You need to make sure you can afford these extra costs, as well as car finance. Any missed payments can affect your credit score and ability to get credit in the future. You’re more likely to get competitive interest rates if you have a good credit score.

We talk you through six main payment options, so you can weigh up the best way forward for you. (Your eligibility for credit depends on your individual situation and the lender’s criteria). 

1. Savings 

Buying a car upfront with savings is usually cheaper than taking out credit. You won’t have to worry about monthly repayments and you can avoid paying any interest. Plus, you’ll own the car straight away. 

2. Personal loan

A personal loan is useful if you don’t have a lump sum of cash to hand. You’d buy the car outright using the loan and then pay the lender back in monthly instalments, including interest. It’s best to shop around for more competitive deals.

It's flexible - you can use a personal loan to buy any type of car, old or new. You can use it to cover the total cost, or just part of it (you could use savings for the other part, for example).

Unlike a car lease, you’re not limited to a certain number of miles per year. So you won’t get slapped with additional mileage charges - no matter how many miles your rack up! 

Remember, if you buy a second-hand car, you need to factor in MOT costs - on top of your loan. 

3. Credit card

Paying on a credit card means your car purchase is protected by Section 75 of the Consumer Credit Act 1974 (if it’s between £100 and £30,000). Section 75 can help if you have quality issues with the vehicle within a certain period time of purchasing the vehicle, for example.

Say you reach a stalemate with the seller, you could claim a refund through your credit card company instead.

Never withdraw cash from a credit card as this can be expensive.

4. Hire purchase (HP)

Car dealerships and brokers can arrange a hire purchase (HP) agreement for you. You pay a deposit upfront and then make monthly instalments towards a loan. There aren’t usually any annual mileage restrictions to stick to.

Unlike a personal loan, HP is secured against your car. You don’t own the car whilst you’re paying for it, and it could be repossessed if you miss payments.

On the plus side, the added security gives lenders more confidence that they’ll get their money back. So if you have a bad credit score, you might find it easier to get HP than a personal loan.

When you reach the end of your HP contract (between one and five years), you’ll need to pay an ‘option to purchase fee’ to buy the car. This fee is on top of your usual payment, and it normally comes to around £100-200, but the amount varies.

5. Personal contract purchase (PCP)

Personal contract purchase (PCP) is similar to hire purchase in that you pay a deposit upfront, and spread the repayments over a few years. The loan is secured, so you risk having to hand your car back if you don’t keep up with the payments. 

One of the main differences is that PCP gives you three options when you come to the end of your contract: 

• Make a ‘balloon payment’ (or lump-sum payment) to buy the car
• Use the car as a deposit towards a different car (depending on your car’s value)
• Hand the car back, with no further payments due

Annual mileage limits often apply with PCP. Going over the agreed mileage incurs charges, and further charges for anything more than average wear and tear. The monthly repayments are usually smaller than HP, but you would have to pay a larger amount at the end to buy the car. 

6. Personal contract hire (PCH)

With personal contract hire, you pay a deposit upfront then hire the car for a set amount of time (typically two to five years). There’s no option to buy the car at the end of your contract. 

The monthly payments are normally higher than PCP as they're based on the full value of the car (not a portion of it).

Most have restrictions on the annual mileage and going over this incurs charges, plus extra charges for anything more than average wear and tear. So, it’s best to keep within the limits to avoid charges at the end.

You may wish to speak to a broker or Independent Financial Advisor for tailored advice, to find the best option for your circumstances.

When is the best time to buy a new car?

Time your purchase right to get the best deal possible. Typically, salespeople have monthly or quarterly targets to aim for. Quarterly targets end in March, June, September and December, potentially making these months your best bet.

If they work towards monthly targets, they’re under more pressure to get rid of the cars at the end of the month. So you may have more chance of a better deal in the last half of the month, whilst they’re still chasing their target.

Another great time is just before new number plates are released. Car dealers typically want to shift older cars to make room for new stock. New plates are normally released twice a year in March and September, so shop around a month or so beforehand to try and bag yourself a bargain.

You’ll need car insurance before you drive away in your new car.