From cash to contract hire, there’s more than one way to buy a new car. Some methods even give you the chance to have a new car every few years, but which option is right for you?
The UK car market is booming. Sales have grown for 35 consecutive months to 165,000 cars in January 2015, fuelled primarily by pay-monthly finance deals.
In fact, figures from the Finance and Leasing Association show that more than 75% of new car sales were financed through dealerships last year. But the Which? Car Survey told a different story – 75% of respondents paid cash for their current car. So which is the right option?
A new way to buy your car
Rather than traditional hire purchase, where the car is paid for in installments until the buyer owns it outright, most of these new-car sales have come from personal contract purchase (PCP) deals. These offer lower monthly fees, with a large ‘balloon’ payment at the end of a fixed (typically three-year) term to buy the car. However, few people make the final payment – they simply trade the car in for a new one.
Already widespread in the US, leasing, or personal contract hire, has also taken off. Effectively long-term car hire, with no option to own the vehicle, it allows drivers flexibility and fixed costs, as maintenance bills are often included.
According to Rupert Pontin, head of valuations at Glass’s Guide to Car Values, these trends reflect changing attitudes towards car ownership:
‘Consumers, especially the younger, ‘direct-debit generation’ have become accustomed to buying high-priced products and services on a pay-monthly basis […] Owning a car will very likely become a thing of the past for most.’
Consider the total cost
However, while the idea of a new car every few years is undoubtedly appealing, it’s important to consider the total cost. Low monthly payments can disguise a much greater outlay overall.
Using three popular cars as examples, we compared the various methods to buy or own a car to see which was cheapest, including cash, buying with a bank loan, hire purchase from a dealer, PCP and leasing.
Perhaps unsurprisingly, our conclusion was that cash is still king when it comes to buying a car. If you can pay upfront, it’ll work out cheaper in the long run. The same applies if you arrange your own finance via a bank loan.
Don’t ignore leasing, though. If you want a new car every few years (don’t we all?), it’s relatively hassle-free and can cost less than hire purchase or PCP. It all depends on your negotiation skills, so always push for a discount. And bear in mind that even the best new car deals pale in comparison to the savings of buying used.
Which option did you choose to buy your car? If you haven’t already, would you consider leasing as a way to buy a car?