The best way to buy a car

From paying in cash to taking out finance, a personal loan, leasing or using a credit card. We take you through your options to find the best way to buy a new car.

buying a car

February 28, 2019

Deciding how to buy a car is not a quick or easy decision – you need to weigh up your options and work out exactly what purchase method is right for you and your circumstances.

Below we’ve outlined all the ways you can buy a car, to help you find the best way for you.

Quick links:

Buy a car with cash

Overall, the cheapest way to buy a car is to pay for it in full with cash. This is because you won’t have to pay any interest on a loan or finance agreement, and having the cash ready gives you more bargaining power when it comes to negotiating a discount at the dealership.

If you don’t have enough savings to afford a car, the more cash you can use to fund it (i.e. to pay upfront on a finance deal or to lessen the amount you loan) the better in terms of keeping the total cost down.

If you decide to use cash to buy a car, remember that:

  • You need to make sure you have enough of your savings left over for an emergency/raining day – don’t go ‘all in’ on a car
  • If you don’t have enough cash to pay for the car in full, use whatever you can to pay the biggest deposit you can
  • Although you can use your cash savings to pay for the car, consider paying for some of it on your credit card so you can benefit from credit card purchase protection – which will mean your credit card provider is also liable if something goes wrong. Just make sure you pay off the credit card bill in full over the next month so you don’t incur any interest charges

Take out a personal loan to buy a car

Unfortunately, not all of us are sitting on enough savings to be able to pay for a car in full with cash.

If you need a bit of financial help to afford the car, the next best way to buy it is by taking out a personal loan to cover the cost – or part of the cost – of the car.

Providing you have a good credit rating, a personal loan can be a cost-effective way of affording to buy a car as the overall interest you pay back is often significantly less than with a finance or leasing option.

However, the interest rate that the loan provider offers you is dependent on your credit rating – with many of the advertised rates only available to those with excellent credit ratings.

Also, make sure the loan isn’t secured against your home as that would be at risk if you are unable to meet your monthly repayments.

As always, it is important to shop around and look for the best deals in terms of the APR.

Top car loan providers

Below we’ve listed the top providers of personal loans for cars, based on their APR interest rates. Be aware that, depending on your credit history, you may not receive the stated APR.

Best car loans under £5,000

For a car loan less than £5,000, these are currently your best options:

  • Admiral – 6.7% rep APR
  • Zopa – 6.8% – 7.7% rep APR (depending on loan amount and repayment term)
  • Post Office – 8.9% rep APR

Best car loans up to £15,000

For a car loan between £5,000 and £15,000, these are currently your best options:

  • Cahoot – 2.8% rep APR
  • M&S Bank – 2.9% rep APR
  • Admiral – 2.9% rep APR
  • John Lewis Finance – 2.9% rep APR
  • Sainsbury’s Bank – 2.9% rep APR (Nectar cardholders only)

Best car loans between £15,000 - £20,000

For a car loan between £15,000 and £20,000, these are currently your best options:

  • Cahoot – 2.8% rep APR
  • M&S Bank – 2.9% rep APR
  • Sainsbury’s Bank – 2.9% rep APR (Nectar cardholders only)
  • Post Office – 3% rep APR

Best car loans between £20,000 - £25,000

For a car loan between £20,000 and £25,000, these are currently your best options:

  • Sainsbury’s Bank – 2.9% rep APR (Nectar cardholders only)
  • Yorkshire Bank / Clydesdale Bank – 2.9% rep APR
  • The AA – 2.9% rep APR (AA members only)
  • Post Office – 3% rep APR
  • Tesco Bank – 3% rep APR

Use a Hire Purchase (HP) arrangement to finance a car

Hire purchase is a method of buying a car on finance in which the loan is secured against the car.

A deposit will need to be paid – which is usually around 10% of the car value – and then you are required to make fixed monthly payments over a pre-defined length of time.

You therefore will not own the car until you make the final monthly payment, after which the car is yours.

Typically you arrange a hire purchase agreement with a car dealership, so they can be easy to arrange and there is room for negotiating a good deal for a new car with the dealership.

Hire purchase agreements also feature flexible loan terms, so you can choose to have a short term (pay back over one or two years), or a longer loan term (usually up to five years).

The drawback is that the car is not owned by you until the final payment is made, but hire purchase deals are the ideal car finance option if you want to eventually own the car outright.

Personal Contract Purchase (PCP) car finance

This form of finance option is similar to a Hire Purchase (HP) agreement, but PCP usually features lower monthly payments so can be attractive to those looking to fund a new car with a lower budget.

However, the drawback is that the total amount you pay back over the course of the finance deal is usually higher with a PCP deal.

With PCP you don’t get a loan for the cost of the car which you then pay back over time. Instead, you get a loan for the price difference between the new car and its predicted value at the end of the hire period. The predicted value is based on industry forecasts when the mileage over the course of the hire agreement is factored in.

One of the benefits of Personal Contract Purchase is that you get a few options at the end of the term. You can choose to:

  • Trade in the car and start a new PCP deal
  • Just give the car back to the dealership with no obligation to buy or sign up for a new deal
  • Pay a final payment – known as a “balloon payment” – to own the car outright

The balloon payment is to cover the resale value of the car, so can range significantly depending on the type of car and how well it retains its value.

As PCP deals tend to feature low monthly fees, they are a popular form of financing a new car. However, you need to be aware that you could be liable for extra payments at the end of the deal if you have exceeded the pre-agreed mileage or if there is any wear-and-tear damage to the car.

Car leasing – Personal Contract Hire (PCH)

Most commonly known as ‘car leasing’, Personal Contract Hire involves you paying the car dealer a fixed monthly amount to use the car. Think of it really as a long-term car hire deal, but with car maintenance and servicing thrown in.

You will have to adhere to a mileage limit, and the car will never belong to you – at the end of the lease deal you hand it back to the dealer.

Lease deals usually come with a higher monthly payment than PCP deals, but you do get more flexibility in terms of switching provider and the overall cost can be cheaper thanks to the service and maintenance costs being taken care of.

Car lease deals are a great way for drivers to enjoy a brand new car for a fixed monthly fee, without having to worry about depreciating value or maintenance costs.

See more:

Best car lease companies

Below we have listed the best car leasing companies based on their average customer rating on sites such as TrustPilot, and Feefo.

Lease company Avg. rating
Select Car Leasing 5/5
Complete Leasing Ltd 5/5
All Car Leasing 5/5
First Vehicle Leasing 4.8/5
Hippo Leasing 4.5/5
Nationwide Vehicle Contracts 4.5/5
Intelligent Car Leasing 4.5/5

Top tips when buying a car

Whatever method you choose to finance a new car, read our top tips below to make sure you get the best deal.

Do your research

When buying a car, knowledge really is power. It’s not a good idea to turn up at a car dealership without having an idea about what car you want, and what the different trim levels and engine sizes are etc.

You should know what the car is worth and what the added extras are worth so you are in a strong position to haggle with the dealer and try to either drive the price down or get a good deal on a higher trim level, optional extras and so on.

Shop around

Don’t be in a rush to buy the first car you like the look of. Having the patience to shop around and view the different options means you won’t miss out on a good deal. It also puts you in a strong bargaining position as you can play dealerships off against each other.

Always haggle

Regardless of whether you are buying cash or signing up for a finance plan, always haggle with the dealership and negotiate a better price or better value deal.

Car dealers will have some leeway and be able to lower the price or throw in optional extras, so you should never just accept the first price.

You should also be prepared to walk away from the negotiation, remember you are always in the frame of mind of ‘looking around’ until you find or get the right deal that suits you – so don’t feel pressured if you are not in a rush to buy a car.

Look at used cars as well as new cars

You may have your mind set on getting a brand new car, but don’t discount used cars – especially nearly new cars. You can find used cars that are only a few months old that are a lot cheaper than brand new cars.

Everyone knows a new car loses value as soon as you drive it off the dealership forecourt, so a nearly new car that is less than a year old and has less than around 10,000 miles can provide much better value.

Always go into a car dealership with an open mind, and don’t commit yourself to only buying a brand new car.

Don’t be fooled by attractive monthly payments

If you’re in the market for a car finance or leasing deal, car dealers will do their utmost to tempt you with attractive and affordable monthly payments. The trend towards buying cars on finance means that consumers now look at deals based on what they can afford each month, rather than the total price.

This is a mistake. What you should really be thinking about is the purchase price of the car and the length of the finance agreement. This way you know how much in total you will be paying compared to how much the car actually costs.

If you like the look of a £250 per month finance deal which runs for five years (60 months), you need to be aware that the total amount you will be paying over the course of the finance deal is £15,000.

When you are negotiating a deal with a dealership, base your position on the purchase price of the car – not the monthly repayments that are on offer.

Know your car insurance costs before buying

It’s also key to factor in the cost of car insurance when you’re looking at your overall monthly payments. If you have an idea of the make and model of the car you want, get a few insurance quotes for it online before you visit the dealership so you know roughly what the cost is.

The cost of car insurance is based on a lot of factors, with one of the main ones being the type of car that is being insured – it’s value, the make and model, the engine size and so on. So if you are planning to try and negotiate a higher spec model of the car you want, don’t get caught out by the higher car insurance cost.

On the subject of insurance, NEVER settle for the policy offered by the dealership or car manufacturer. They will usually provide ‘drive-away’ insurance that can last anything from a day to a week so you can buy the car and drive away without having to worry about car insurance. However, they will also offer a full year’s policy that is often a lot more expensive than one you can find yourself online.


Don’t pay for add-ons you don’t need

Car salesman are notorious for trying to extract as much money as possible for you, and this always includes trying to push as many add-ons as possible.

You may well want some of the add-ons and can use this as an opportunity to negotiate a better price overall. However, don’t fall for the sales tricks and be in control of exactly what you want. Do you really need heated front seats? Is a built-in Sat-Nav really worth it when you can use much cheaper options?

You may want a rear camera to help with parking, but you can also buy those separately and have them fitted to your car for a lot cheaper than the built-in ones. 

See: The best reversing cameras

Don’t buy the extended warranty

Extended warranties offered by the dealership are usually quite expensive, and often don’t offer a huge amount of cover for certain types of mechanical issues or failures.

A new or nearly new car will come with a manufacturer’s warranty that should offer enough coverage until your car gets to the MOTs required age.

If you are getting a car on finance sometimes the dealership will offer to include an extended warranty as part of your finance deal. This is definitely something you should avoid as you will end up paying interest on the warranty price as part of your monthly repayments.

Take the car for a test drive

Surprisingly, not everyone who buys a car takes it for a test drive first. Whether it’s simply impatience or feeling nervous about driving a new car with a stranger as a passenger, as much as 10% of new car buyers don’t take the car out for a road test first.

Test driving is essential if you want to ensure the car you are buying is right for you. Some cars just don’t feel right to certain people, whether it’s the size of the seats, the gearbox, the steering wheel, the dashboard layout or anything else. You may like the look of a certain car from the outside, but it’s behind the wheel that you spend most of your time with it.

If you have children, it can be a good idea to take them along for the test drive as well. They usually don’t hold back with their feedback about how comfy they are in the back!

As well as the comfort levels, you should also check the following on a test drive:

  • Driving position view: How good is the visibility out of the front and back windscreen? Are you happy with the position of the wing mirrors and is the view from them acceptable?
  • Idle state: When idle (e.g. waiting in traffic/at a junction) the car should be quiet and smooth with little or no engine noise.
  • Handling and braking: Be sure to give the brakes a good test to make sure they are in good working order. Also, drive a route that has a lot of bends and roundabouts etc. so you can get a good feel for how responsive the steering is.
  • Gear changes: Make sure you move up and down through all the gears while on a test drive. All cars are different and all gearboxes will feel different when using them. Your test drive route should therefore include a stretch of road which will allow you to speed up and get the car into top gear.
  • Controls on the dashboard: Check everything from the indicators to windscreen wipers, air conditioning, media controls and more.