Credit cards Updated:
If you're thinking of buying a car in the next few months, just how are you planning to pay for it? This could well depend on how much you're planning to spend, but given the fact that people are typically spending more on cars these days, many are turning to finance.
Research from Sainsbury's Bank shows that 24% of adults surveyed are considering buying a car in the next six months, and are planning to spend an average of £12,000 in the process. This is an increase of 17% on six months ago when the typical car-buyer expected to spend £10,290, which suggests that consumer confidence – and even credit availability – is on the up.
This confidence is reflected in the fact that people are planning to spend even more on a new car, with this setting people back an average of £17,841, an increase of 20% on six months ago (£14,831). Conversely, those seeking a used car are expecting to spend 7% less, averaging £6,785. Either way, these are still substantial figures, which means that many will need to rely on credit to fund their purchase.
The research found that 45% of respondents are planning to do just that, a three percentage point increase on six months ago. A credit card is the most popular finance option for car buyers, with 29% planning to use this form of credit. A further 27% would turn to a personal loan, while 26% would opt for a hire purchase agreement and 25% would take out a personal contract purchase plan, with the latter two typically being arranged at the time of purchase.
The option you choose will always depend on your personal circumstances, and in many cases your preferences, but either way, Simon Ranson, head of Banking at Sainsbury's Bank, has this advice: "Whether you are buying a new or second-hand car, it's worth reviewing all payment options available as it could make a significant difference to the monthly repayments and total price you will pay."
This is essential no matter what you're using credit for, as you'll always want to go for the option that has the least amount of impact on your budget. For some, a credit card could be the solution, particularly if they opt for a 0% purchase interest card, as it'll give them plenty of time to pay off the car without interest adding to the bill.
Others will like the security of a personal loan: they'll have set repayments and will know they'll be debt-free at the end of the term, and they'll also be able to own the car outright. On the other hand, hire purchase and personal contract purchase plans can offer a more flexible solution – these forms of credit typically offer much lower interest rates for new cars than for old cars, and in some cases you'll be able to find 0% interest deals.
PCP in particular will generally offer lower monthly repayments as you won't be paying off the full value of the car, and will instead need to pay off a lump sum at the end of the term if you want to keep it. However, both of these options will need to be carefully thought about, as they may not be suitable for those who want complete ownership of the vehicle from the outset.
No matter which option you go for, it's important to go through your budget carefully beforehand. You'll probably need to make your decision based on what kind of monthly repayments you can afford, and you'll need to make sure that your credit score is up to scratch before you even think about applying for credit. But, if you're confident that credit is the right solution, make sure you find the right product to suit – check out our loan calculator and credit card best buys to start the process, and you could have your new (or used) car before you know it.
Remember, in order to secure access to credit you will need to have a good credit rating. To find out if yours has a clean bill of health, contact a credit check provider, such as Experian CreditExpert to investigate your credit report.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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