Buying a car: 4 money matters

When you buy a car, finding one that suits your personality, life and style is half the task. Making sure it fits with your budget is the rest. Here are four things to consider…

New or used?

That brand-new car smell is something to be savoured. But, buying the same car with a few miles on the clock can knock a good few thousand off the price tag.

Brand-new cars are likely to come with a three-year warranty though – so weigh up if the peace of mind (and the new car smell) is worth the extra money.

If you opt for a used car, check a few online classified ad services – such as Autotrader – to give you an idea of how much the make and model you're interested in will cost.

Dealership or private sale?

Dealerships do offer some perks when you buy a new car from them. Usually this in the form of more guarantees such as:

  • A history check - so you don't have to worry whether the car is stolen or if it's been written off in the past

  • A warranty

By law if a problem occurs with your new car within 30 days of buying it from a dealership you can get your money back. Within 6 months they have to offer a repair, replacement or refund unless the dealership can show the fault came about after the sale.

These perks tend to be reflected in the cost though with higher prices than if you buy a new car privately.

Buying your new car from an individual rather than a business can mean you get a better price but, remember, there are no guarantees or protection. If the price seems too good to be true, act cautiously. Companies like the AA and RAC offer vehicle inspections and data checks, so that could be worth considering.

Running costs

On to the day-to-day costs. These are the things that will see you dipping into your bank account as the owner of your new car:


This could be one of the biggest expenses. The cost of cover can vary wildly and is based on factors such as the type of car, your age and occupation, where you live and how much you plan to use the vehicle. Use a price-comparison website to check likely insurance prices before you buy. Adding extra drivers to your policy – especially learners or young people – can push costs up considerably.


Fuel efficiency is very important, and a number of websites let you check how many miles you'll get per gallon – use that information to work out how much you're likely to spend filling up. Simply do a search in your internet browser for "check fuel efficiency".


The amount of vehicle excise duty (VED) you'll pay depends on your vehicle's CO² emissions. The seller should be able to tell you what tax band your vehicle falls in, and you can check annual rates on this UK Government website. You can now pay tax through monthly direct debit to help spread costs.


If your vehicle is out of warranty, you'll have to pay for any repairs yourself. It's difficult to say how much this might cost but, if the car you've got your eye on is older, you may want to set a monthly budget aside.

Also, if your new ride is rare, has been discontinued or modified, the parts may cost more.

Once your vehicle is three years old, you'll have to pay for an annual MOT check. The maximum test cost is £54.85 but you're likely to find a test for cheaper as the garage hopes to get the repair business if there's any too.

Breakdown cover

Optional, but it can provide peace of mind on longer trips. Use a price-comparison service to check likely prices based on the extent of cover you want.

Cost of finance

If you're borrowing money to buy your car, include your expected monthly repayments in your running costs as well.

How to pay

Lucky enough to have a wedge of cash in the bank? This gives you the option of paying outright when you buy a new car. But if you don't, there are other ways to fund your new wheels.

Hire purchase and personal contract plans

These are offered by the dealerships and manufacturers and sometimes just known as HP and PCP.

You'll pay a monthly figure each month. With HP, at the end of the period you become the legal car owner.

With PCP, you can choose to pay a lump sum to become the owner or the car goes back to the dealer. There are often limits on the mileage you can do too, so check that before you sign.

With both options, you don't own the car until you make the final payment and/or lump sum payment - so if you miss repayments, you could lose the vehicle.

Credit card

Pay this way and the car is yours from the start.

You may be able to find a low rate card - it will depend a lot on your credit score.

Just remember to pay the balance off within the low interest period as the rates can sky-rocket after.

There may be an admin cost added by the retailer for a credit card purchase - so check for that. It's worth getting clued up on when interest offers can be removed too - this can often happen if you miss a repayment.

Finally, you may not be able to borrow enough money to pay for the car you want with a credit card: credit limits on cards tend to be lower than on unsecured personal loans, for example, especially if you are a new customer.

Unsecured personal loan

An unsecured personal loan is perhaps the most straightforward and easy to understand way of financing your car purchase. You apply to borrow a fixed amount of cash, and then pay it back, with interest, in fixed monthly instalments over the next one to five years.

You will own the vehicle from the outset, and you will have the peace mind of knowing exactly how much to repay every month and when your loan will be cleared.

As with HP and PCP, the size of your repayments varies depending on how much you're borrowing and how long your repayment period is. Bear in mind, though, that the interest rate on your loan can change depending on how much you borrow and for how long. For example, smaller loans (of under £5,000, say) tend to have higher rates.

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