Should I get car finance? Six questions to ask yourself

  • Not all car finance schemes work for every driver
  • Make sure a deal suits your needs before signing up
  • Ensure you look after the car if you plan to return it

It’s easy to be seduced by the idea of driving a brand new car every few years for a small monthly payment, but not all types of finance work for everyone. To make sure that you don’t get caught out by signing up for a deal that doesn’t suit your circumstances – or one that you can’t afford – ask yourself the questions below.

We’ve rounded up the key elements that could mean that Personal Contract Purchase, Personal Contract Hire and Hire Purchase schemes might not be the best way to fund your next car. Don’t fret, though. While these factors may mean dealer finance isn’t for you, taking out a loan or opting for a cheaper used car could be the answer.

Find out how much you can afford to borrow with our car loan calculator or try out our used car search to see just how much you could get for your money.

1) Can I afford monthly payments?

Nearly all car finance plans rely on you making set monthly payments. Should you hit a sticky patch, it’s often possible to renegotiate the terms to shrink these payments and ensure you don’t fall behind. However, you’ll want to be certain that your income is steady enough to meet the monthly cost before you sign on the dotted line.

If you miss any payments you can expect to be stung with late payment charges and additional fees that could quickly see your debt spiralling, potentially causing real damage to your credit score. This could prevent you from accessing the best-value mortgages and cheapest loans in future – or mean that banks won’t lend to you at all – so think carefully.

2) Is my credit history good enough?

Your credit rating could drastically affect the amount you pay for car finance. If you’ve got a very poor rating you can be sure that you won’t have access to the top deals and you’re likely to be faced with more expensive interest charges.

Furthermore, if you’ve had trouble meeting monthly payments for other services in the past, are you sure that you’ll be able to meet the payments for a new car on top of all your current costs? If not, it’s probably not worth the stress of struggling to make payments each and every month.

Consequently, it’s worth taking some time to build your credit score before opting for car finance. If you need a car in the meantime, consider buying an affordable used car to tide you over.

3) Do I need a new car?

With some new cars available from little more than the price of a mobile phone each month, it’s very easy to think that all finance deals must be good value. However, nine times out of 10 you’ll have to put down a sizeable deposit and even if you don’t, the total cost can rack up quickly.

So it’s worth mulling over whether you need a new car – and if so, how much are you prepared to pay for it? Toyota is currently advertising its Aygo x-cite for a mere £99 each month, but you have to put down a whopping £4,603 deposit to get this rate on a two-year PCP deal – meaning a total bill of £6,979 for simply renting the car.*

If you have £4,603 spare you could buy a two-year old Aygo with less than 20,000 miles on the clock. Both new and used models could be a good option for different drivers, but if you’re considering the finance scheme, it’s wise to work out exactly how much you’d have to pay in total – should you hand the car back at the end of the contract or make the optional final payment to buy it.

If you value driving a new car and can justify the extra cost, go for it. However, if this seems like a pricey luxury to you, fear not, as there are numerous affordable used car options that could be better value for your needs.

4) Do I use my car enough?

In many cities car use is falling as the hassle involved in finding somewhere to park and the costs of running a car put many drivers off. If you live somewhere urban with decent short-term car hire options, it’s worth considering whether you use your car enough to justify committing to a finance deal over several years.

For the cost of the £99-per-month Toyota Aygo and deposit you could afford 208 days of ZipCar rental. This means that you could access a Ford Fiesta-sized car – larger than the Aygo – every Saturday and Sunday for the duration of the PCP contract for exactly the same price.

If you only use your car one weekend every fortnight, signing up for a car rental club rather than paying for a finance plan could drastically cut your car bills – and you wouldn’t have to worry about insurance, car tax or servicing.

5) Do I have a history of damaging my cars?

We all pick up the occasional scratch when driving, but if every car you’ve driven has quickly acquired dozens of bumps and scrapes, think carefully before opting for a manufacturer finance deal. This is because PCP and PCH offers are worked out by calculating how much the car is likely to be worth when you hand it back – assuming the car is still in good condition.

Return a battered car and you’re likely to have to pay additional fees as this damage will reduce the amount the finance company is likely to recoup when it comes to sell it. If you’re considering a PCP deal and are certain that you want to buy the car at the end of the contract, this doesn’t apply, however.

6) Am I sure this is the right set-up for me?

If you want to own your car from the start or plan to modify it, other funding options could suit you better, as you’ll need permission from the finance company to change your car from the manufacturer’s specification – as until you’ve made all the payments, the car doesn’t belong to you. In this case, opting for a loan or buying a car with whatever cash you can raise could be a wiser choice.

If, however, you’ve got your heart set on a new car, you know exactly how much you’ll have to pay – whether you return the car or buy it when the scheme ends – and you’re confident that the deal works for your needs, you could be amazed how much car you could get for your money.

Check out our pick of this week’s most appealing finance deals on our Weekly Deal Watch page.

Want to learn more about car finance? Take a look at the articles below:

Car finance: what is PCP?

Eight signs of a great finance deal

Top seven-seater cars for less than £350 per month

The seven deadly sins of car finance

Avoid off-roaders to get the best finance deal