Should You Buy a Car on Credit? What to Consider Before Borrowing
Buying a car is a big expense, and unless you have the money saved to pay for it outright, borrowing could help you spread the cost.
But car finance isn't one-size-fits-all. The type of borrowing you choose can affect your monthly payments, how much you pay overall, and whether you'll own the car at the end of the agreement.
The trick is to look beyond the monthly payment and understand what each option means for you.
In this guide, we'll explain the main ways to finance your car purchase, the costs that are worth comparing, and some of the details that are easy to overlook when you're choosing a finance deal.
Which type of car finance suits you?
Not all car finance works in the same way. Some options let you own the car from the outset, while others mean you'll only own it after making all the required payments.
Understanding the difference can help you narrow down your options before comparing specific deals.
Personal loan: borrow to buy the car
A personal loan lets you borrow a set amount and repay it in instalments over an agreed period.
If you use a personal loan to buy a car, you can usually pay the seller outright and own the vehicle from the start. Your loan repayments remain separate from the car itself.
This can be worth considering if you want to own your car and prefer a straightforward repayment plan.
What to compare:
The APR and total amount repayable.
The length of the loan and monthly repayment.
Whether there are fees or charges for repaying early.
If you're considering a personal loan to fund your next car, Plane Saver Credit Union offers car loans up to £35,000 for its members. It won’t get you a Ferrari, but it should get you a reliable car.
Hire purchase (HP): pay towards owning the car
With hire purchase, you usually pay a deposit followed by monthly instalments. You generally become the owner once you've made all the required payments and paid any final fee set out in the agreement.
HP can suit people who want to spread the cost and keep the car once the finance is paid off.
What to compare:
The deposit and monthly payments.
The total cost over the full agreement.
Any final fee and what happens if you fall behind on payments.
Personal contract purchase (PCP): more choice at the end
With personal contract purchase, your monthly payments are generally based on the car's price, its estimated value at the end of the agreement, interest, and other costs.
This can mean lower monthly payments than some other finance options, but there's usually a larger optional final payment if you want to own the car.
At the end, you can typically pay the final amount to keep the car, return it subject to the agreement's conditions, or explore part-exchange options.
What to compare:
The deposit, monthly payments and total cost.
The final payment if you want to own the car.
Mileage limits and possible charges for damage or excess mileage.
The monthly payment isn't the whole story
A lower monthly payment can look appealing, particularly when you're trying to keep your budget manageable. But it doesn't always mean you're getting a cheaper deal.
The length of the agreement, interest rate, fees, and any final payment can all affect how much you pay overall.
Before choosing a deal, compare the total amount repayable, not just the monthly figure. This helps you see the bigger picture and understand what the borrowing will cost over time.
Ready to explore your car finance options?
Choosing how to pay for a car is just as important as choosing the car itself. Comparing your options, understanding the total cost and finding repayments that fit your budget can help you move forward with confidence.
If you're looking to buy a car with a personal loan, Plane Saver Credit Union could be an option to consider.
Explore Plane Saver's car loans to see whether one could work for you.
