How To Afford A Replacement Car (without saving endlessly)

The most difficult about buying a car is how to pay for it. Cars are not cheap and depending on the make and model, they can cost almost as much as someone’s annual salary (before taxes). 

Researching a good financing plan or saving up is a must for anyone who wants to buy a car. We’ll take a look at some ways you can pay for your car and what factors you need to keep in mind as you do your research.

Finance Options

Since not everyone wants to dip into their savings to purchase a car, the next best option is to finance the car. There are three main ways to do so: a personal car loan, a hire purchase, or a personal contract purchase. Each of these have their advantages and disadvantages.

Personal Loans

A personal car loan means that you own the car outright. If you have good credit, you could easily qualify for a large loan and you may even be able to get one with lower interest rates. The longer you take to pay off the loan, the more interest you’ll pay, but the less the monthly payments will be. If you miss a payment, this can adversely affect your credit, but the car still belongs to you.

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Hire Purchase

A hire purchase is like a loan, but the lender owns the car until it is paid in full. You’ll need to make an initial deposit on the car (usually about 10%) and make sure that you pay on time each month. 

You may get the option to finance the car for 3-5 years; the longer it takes to pay off the car the more interest you’ll likely be paying. The car may be repossessed if you default on your payments. 

One advantage the hire purchase has over a personal loan is the ability to get approved for one. A hire purchase is a lower risk loan and therefore, your chances of getting one are higher than being approved for a personal car loan. 

If you plan on keeping your car for a long time, this is a good option for those who may not have a perfect credit score but are able to keep up with monthly payments.

Compare Plans

Once you’ve decided on a financing plan, it is important to compare offers from lenders. Websites like MoneyExpert.com can help you save time by doing your research in one place.  It’s like Skyscanner but for money products. You can be sure that you’ll be paying the lowest interest rate and getting the best financing deal for your car. 

Personal Contract Purchase

A personal contract purchase is best for a new vehicle that you don’t plan on keeping for more than a few years. Like a hire purchase, there is an initial deposit, but you pay for the difference in the value of the car from the time of purchase to the end of the contract. 

You can choose to purchase the car outright or return the car to the dealership after the contract has ended.