Financing a car vs paying cash

Nothing’s worse than an itch you can’t scratch, and when it comes to the world of automotive nothing is worse than finding a car you really like and not knowing how you’ll fund it. 

Do you opt for a bank loan? Enter into a PCP deal? Perhaps you’re lucky enough to have the cash to outright buy it. You could be forgiven for thinking that the hard work is done once you’ve settled on a make and model but the work is far from over.

Here’s a few questions to consider prior to choosing whether financing a car vs paying cash is right for you.

Do you want to own the car?

This question might settle the dilemma for you straight away. If the car you want is your dream car, or you value ownership over usership, or know for a fact you’re not going to want to swap the car at any point during the term of your contract, then you’re more than likely want to pay for it upfront.

Not only does that mean you won’t necessarily need to pay a deposit or discuss monthly repayment but it will give you peace of mind that you own the car outright meaning no prolonged repayment schedule. 

It also means the car is yours to do with as you please, so if you want to stick a towbar on the back or fit a novelty horn then you can make any modifications to it immediately. That extends to any wear and tear too, it’s your responsibility to fix it and you can’t be penalised if you don’t.

Pros and cons of paying cash:

Do you want the newest model?

If you’re the opposite of the above, namely you’re not looking to drive your dream car, you just need something to get from A to B, or like the idea of having the latest make and model on your drive every couple of years, then financing a car is likely your best bet.

What’s more, you might actually be getting the better end of the deal. Research carried out by What Car? In 2020 found that 14% of new cars were cheaper when bought with PCP deals. This is because dealerships will often make large deposit contributions and offer low interest rates, so when it comes to making that final balloon payment at the end of your term you are likely to have paid less than if you bought it outright. Something to bear in mind if you’re adamant you want to buy outright too…

If you want the newest models and know for a fact you don’t  want to own the car at all, then PCH or leasing is what you’ll want to opt for. Leasing is essentially a long term rental whereby your monthly payments are based off the depreciation of the vehicle. This tends to be the lowest form of car finance as there’s no interest rates or balloon payment.

Pros and cons of car finance:

What makes the most financial sense?

While we can offer you advice to inform and educate yourself, only you know whether financing a car vs paying cash is right for you.

While finance offers a certain amount of flexibility whichever form it comes in, it does involve entering into financial agreements for prolonged periods of time which can impact your credit rating. Cash on the other hand is immediate and when buying used will more often work out cheaper than having to take out a bank loan to fund your purchase.

Whichever you choose, ensure you have consulted your finances and can afford the deal as well as all the associated running costs of having a car such as tax, insurance, fuel and maintenance.

If you want to go down the finance route, you can get a decision in minutes with us. Even better, it has zero impact on your credit score.