Car finance or cash: which is best?

If it’s time for you to get a new car, there’s so much for you to think about – makes, models, colours, extras and the rest!

One thing you might not have got around to deciding yet is how you’ll pay for it. There are plenty of options if you go down the finance route, or you might have enough in savings to pay in cash.

It’s not quite as straightforward as simply splashing out because you can afford it, though. There are big differences between a cash purchase and financing that you ought to be aware of.

Cash

The pros

• No long-term payments: Once you’ve paid for the car, you only need to cover fuel, tax and insurance. This makes a far smaller dent in your overall budget.
• You own the car: Want to change the car in some way? You can go right ahead. Had enough and want to sell it? The choice is yours.
• Better price: Paying in full upfront might help you to shave a bit off the price when it comes to haggling.

The cons

• Depreciation: You’ll likely never make your money back when it comes to selling. If you buy new, in fact, your car will lose value the moment you drive it away from the dealership.
• Limited choice: You will be restricted to cars worth however much you have saved up. This might also limit your ability to add any extras you’re looking for.
• Little protection if things go wrong: If you write off your car soon after buying it with cash, there’s not much that can be done to get your money back.

Finance

The pros

• Flexibility: PCP finance deals offer you the chance to hand your car in after a set period and get a new one, so you can always have a fresh set of wheels if you want.
• Better choice: Spreading the cost over a long period opens up more options to you, both in terms of the car you want and what extras you can add.
• Improves your credit score: As with any line of credit, regularly making your car payments will reflect positively on your credit report. Bad credit car finance can also help boost your score if you’ve not got a strong credit history.

The cons

• Paying interest: The price you see won’t quite be the price you’re paying as you will also be charged interest.
• Lack of ownership: You won’t own the car until it’s fully paid off so making any modifications before then is a big no-no.
• Can be difficult to get out of: If your circumstances change and you don’t want your car, it’s often tricky to get out of the deal before its scheduled cut-off point.