According to research, a car is the second most expensive investment most people make after buying a house, so it’s no surprise that many people struggle to afford a car outright. Buying a second hand car is very popular, as brand new cars lose value fast and they are usually much more expensive that a second hand version, even when the car is in perfect condition, has hardly done any miles and is only one or two years old.
Ways to afford a second hand car
If you’re struggling to afford to buy a car, there are options available to you. One popular option is to take out a car loan; this involves borrowing a sum of money from a bank or financial organisation and then paying it back over a fixed period of time with interest. Car loans are beneficial if you are interested in owning the car and if you pay back the loan without any problems or delays, this can also boost your credit score. Once you have paid off the loan, any money you make from selling the car will be yours to put towards your next car or to invest in something else.
Car finance has become very popular; finance allows people to buy a car over a period of time. The most common way to use car finance is to pay a deposit on a car and then pay monthly contributions towards the cost of the car until the total amount has been paid. It is possible to switch cars and create new finance agreements, but this may carry a charge.
If you cannot afford to buy a second hand car but you need a car for work or simply to get around and about, it may be worth considering contract hire, which is like a rental scheme for cars. There is also the option of used car finance for second hand cars rather than brand new ones.
Which option is best?
Both car finance and car loans are a good idea provided that you can afford the monthly payments; if you are already stretched at the end of the month, taking out a loan or setting up another monthly direct debit is not a good idea, as your credit score will suffer if you miss repayments and you can be taken to court if you fail to pay off your debts.
Banks tend to offer you a better deal if you have good credit history; if you have paid off loans in the past, you regularly pay direct debits from your account and you pay off your credit card on time, you are likely to have a good credit score. If you have a low credit score, your loan request may be turned down. You can improve your credit score by paying bills on time and clearing outstanding debts; if you have a low credit score, it may be worth hanging fire until you have increased your score.
