The car buying experience can be a daunting one, especially if it is your first time venturing into this type of purchase. As one of the largest personal purchases you can make in life alongside buying a property, for example, buying your first car is usually something you do not want to rush into. Like with many large expenses, you don’t have to save up the money needed to cover its cost. Instead, there are many finance and car loan options available to help, so you can save a smaller amount to use as a deposit and then spread the remaining value over monthly instalments. To help navigate your choices, here’s our quick guide on what to keep in mind and how to finance your first car.
Check Your Affordability
As with any type of borrowing, you need to ensure you can afford it. If you apply for credit without really being aware of your income and outgoings, you could end up being tied to a large loan that you struggle to maintain for the next few years. Whilst most reputable lenders will check your finances as part of an application, it is still the borrower’s responsibility to maintain the loan and ensure monthly repayments are realistically affordable. The best way to approach this, especially if you haven’t done so before, is to fully review your income and expenditure.
You need to cover your essential outgoings first before taking on any further credit, and if your non-essential spending is high, seek ways to reduce this so that your disposable income figure is a true reflection of your monthly finances. If your credit rating is already low, it is especially important to be able to show you can afford the car loan you want.
Ensure You Are Getting the Best Value
There are many places you can purchase your first car from, including private sellers and dealerships. Whichever option you choose to go down, you want to ensure you are not overpaying for the vehicle you want. One way to work this out is once you have identified the make and model you want, research the value of the car when it’s brand new, as well as used. You’ll then be able to compare with similar listings what you can expect a good value to be. Many factors will affect the cost of a vehicle, such as the mileage, general wear and tear and year of manufacture, amongst others.
Before agreeing to a price with a seller or dealer, ensure you are happy that it meets your expectations from prior research. Some dealers offering alternative options such as car loans for bad credit may have their vehicles priced higher due to the specialist nature of the product. However, if you feel the vehicle is over-valued, you can always walk away and keep searching before signing on the dotted line. The value of a car can vary massively, so stick to a budget and ensure you are getting everything you want for the value quoted.
Think About the Long Term
You could be purchasing a car that ends up being with you for many years, especially when taking out car finance. You’ll want to consider whether during the term, for example 5 years, if your circumstances may change. You may decide to start a family and need something bigger, or may decide you want to trade it in for something different. This is where the different types of car loan come into play, as each will provide a different option.
Personal Contract Purchase (PCP), for example, will mean you cannot sell the car during the term with the finance company owning the car until it is paid off. Once the agreed term is finished, usually 3-5 years, you can either return the car, pay the balloon payment to keep it or use the value towards buying a new car. Another option is Hire Purchase (HP), where the total value of the vehicle plus interest, is spread over monthly instalments, however, the monthly repayments can be over a longer period or higher than PCP as you will own the car at the end of the term. In a similar way to a personal loan, HP has a fixed interest and will mean you pay off the loan across the term.
Finding the right choice for your circumstances is vital, so researching your options before going ahead is advisable. That way, there won’t be any surprises and you can just enjoy your first car buying experience.