Car finance: why you shouldn’t pay cash for your next car

  • Pay less than the list price with the best finance deals
  • Save money and gain flexibility with PCP schemes
  • Bundle extras like servicing and insurance for easy budgeting

Budgeting for a car used to involve looking at your savings and working out how much you could afford to take out. Now, however, finance schemes have transformed the way we purchase cars. Whether you have cash to hand or not, finance can be the savvy way to purchase a new car, with many offers working out cheaper than paying upfront.

This means that even if you’ve always bought your car in the past, finance deals could leave you better off. And there are a number of other benefits too, with packaged deals making life much easier. Find out how much you can afford to borrow with our car finance tool.

Pay less than the list price with finance

Interest rates have been historically low for years and they’ve just got lower. What this means is that numerous manufacturers offer zero-percent APR finance and even more are likely to follow suit in October when the next round of finance deals are announced. Click here to find out more about how the lower interest rate could affect car finance deals.

As a result you can spread the price of many cars over several years without any interest added. As several car makers also throw in deposit contributions, in many cases you can pay way under the RRP – in bitesize chunks.

Get the best price without haggling

PCP deposit contribution discounts normally aren’t offered to cash buyers, so unless you want to haggle hard with the dealer for a cash discount, many finance deals work out cheaper – potentially to the tune of thousands of pounds.

If you are willing to haggle, however, you might be able to get an even better finance deal. You can always ask the dealer to slash the interest rate (if interest is charged), put in a larger deposit contribution or throw in several extras to give you the maximum bang for your buck.

Bundle in extras like servicing and insurance

Helping to simplify the car ownership process further, many brands offer packages that include servicing, insurance and road tax in the monthly cost.

Peugeot’s Just Add Fuel is one example of this, adding these easy-to-forget costs to the monthly bill so you only have one motoring payment to worry about each month.

Easy budgeting with consistent monthly costs

Finance deals also make it simple to budget for car costs, with a round bill every month – especially if you opt for a packaged Just Add Fuel-style set-up. As you’ll be driving a new car, you shouldn’t have to worry about unforeseen repair bills either – and you’ll have a warranty to call on if anything goes wrong.

Several zero-deposit deals are available as well, so not having a large discount doesn’t mean that you can’t find a great deal. You can even benefit from some zero-percent APR deals or large deposit contributions without putting down any money upfront, so the best offers should be appealing whether you have cash to hand or not.

Flexibility to buy the car or hand it back

PCP deals let you put off the decision to keep the car or hand it back until the end of the contract. Unlike PCH leasing deals which don’t give you the option to buy the car – or Hire Purchase offers that don’t let you return it – PCP gives you ultimate flexibility.

Remember that if your situation changes dramatically and you’re suddenly unable to meet PCP payments, you should be able to return the car through the right to Voluntary Termination – provided you’ve paid at least 50 percent of the finance balance.

No worries about selling a used car on

Own a car outright and at some stage you’re going to have to sell it on. This can be one of the most frustrating elements of car ownership; however, opt for a PCP or leasing deal and you never have to worry about this, if you have no desire to own your car.

How much the car is worth when you hand it back is factored into the monthly costs, so unless you cause any damage or exceed the agreed mileage limit, you shouldn’t be stung with any unexpected charges.

Make interest on your savings

Interest rates may be at rock bottom, but you can still make money on your savings by not ploughing them into the price of a car.

Until now it’s been possible to make 3.0 percent interest on up to £20,000 with a high-interest bank account, and though this may fall following the Bank of England cutting the base rate of interest, any interest you make is still extra money in your pocket if you secure a zero-percent APR deal.

Alternatively, opting for a zero-interest finance deal and using cash to pay other bills rather than financing these could reduce the amount of interest you pay.

With the prospect of great-value offers – courtesy of historically low interest rates – added convenience and greater flexibility, now is a better time to opt for car finance than ever before. Check out the latest top deals on our Weekly Deal Watch page.

Want to find out more about car finance? Take a look at the links below:

Car finance: what is PCP?

Interest rate drop: how does it affect car finance?

Top cars for £100 per month

Does car finance work for me? Six questions to ask yourself

Great seven-seaters for less than £350 per month