Car finance confusion!

[beastlyslumber]

Hi all. I am looking to buy my first ever car and have been wondering whether PCP is a good idea. I'm worried that this will mean getting locked in to a finance deal forever.

There's also the option of PCH, which means I won't own the car, but there's also no interest on payments so that keeps monthly payments low.

The other option is HP through a dealer OR I could take out a low-interest loan to buy something outright.

It's all very confusing. I haven't managed to save much for a car (been paying loads for lessons!) but I have saved 2k to use as a deposit and could get a 2.8% apr loan to buy something second hand. Does that sound like a good move or is it worth going for a finance deal of some kind?

Any thoughts gratefully appreciated! It is very confusing out there in car finance world!

It sounds like you're a new driver, which means that a PCP, lease/PCH is probably not a good idea, because it's quite likely you'll bump/scrape it along the way, which is expensive when you have to hand the car back in 3 years time in very good condition.

I'd look at a small car if you can manage one, ie you don't need to transport teenagers, bulky equipment, big dogs or drive hundreds of miles on the motorway regularly, as it will be cheaper to buy, run and insure. Dealer finance is often quite a bit more expensive than a personal loan, if you can get a decent rate.

Make sure you factor in running costs, people often underestimate these, tax, insurance, MOT, breakdown cover, servicing and tyres and other repairs.

Aim to allocate/save an amount every month to pay for these, at least £100, likely more. Use your £2k to pay your insurance and tax up front and keep back a few hundred for any servicing/repairs needed - people often neglect these if they're planning to sell the car.

Then get a loan based on what you can comfortably afford to repay over the next 2-4 years maximum, alongside saving for all the above and to replace your next car.

I am a new driver, yes, despite being ancient - just passed my test a couple of weeks ago!

That's great advice, thank you. I was thinking about paying part of it on a 0% credit card (for payment protection purposes really) and using a low interest personal loan to pay back the car over 4-5 years. I guess I should then factor in monthly savings as well so that will make a difference too.

That's good advice about paying for tax and insurance with the 2k I've saved.

Second hand cars are more expensive these days and I will need something reliable that won't cost me a fortune in repairs and hopefully will have some trade-in value by the time I want to replace it. When looked at that way, a new car on PCP/PCH looks a bit more attractive, but I am definitely wary of pranging it somehow and also I don't really have a good sense of what sort of mileage I'll be doing and feel like that could trip me up too.

Thanks - your advice is so helpful!

I would look into a concept called Bangernomics!