Which Financing Method Is Best When Buying a New Car?

01 Jul 2015
| Last update: 22 Aug 2017

Buying a new car is an investment. It’s not a spontaneous decision you take after you see an amazing commercial on TV. Most of the time, people buy a new car after they’ve dreamed for it for a while.

In this case, it makes sense that you also take time so think about what would be the best financing method for you when buying it.

buying a new car

Let’s see what are the most popular ways to finance your car purchase.

Personal Loan

You can get a personal loan from a bank or from a building society. You can make it on a longer period of time, and the advantage here is that you will pay less every month. The rate will remain the same throughout the years, and you will also own the car from day one.

Keep in mind that for a personal loan you need to have a clean record in order to be accepted.

Loan Purchase

A loan purchase has basically the same principle as the personal loan. The major difference is that you borrow money directly from the dealership, instead of a bank. Loan purchases usually have higher rates, but they are also negotiable.

Compared to an unsecured personal loan, where your assets can be at risk if you’re not on time with your monthly rates, the only thing that’s at risk here is your car.

Personal Contract Purchase

This is a popular financing method for buying a new car, especially for those that want to have a little bit of flexibility. A personal contract purchase means that the buyer will first pay a percent of the cost of the car over a period of time, usually around 3 years, give or take.

At the end of that period, you can choose to buy the car, exchange it for something better, or return it.

Personal Contract Hire

It is also called personal leasing, and it means that you hire a car for 2-3 years usually, with an annual mileage limit. At the end of the hire, you don’t have the option to buy the car. You’ll just have to return it.

A personal contract hire is perfect for you if you don’t want to own a car, if you like to change cars once every few years, and if you like to drive expensive cars you can’t really afford.


If you have the money for buying a new car, then paying with cash is the best decision you can make. It is also the cheapest financing method, because there are no interests from a third party, and you’ll own it right away.

Weigh In Your Options When Buying a New Car

You will definitely spend some time deciding what would be the best option for you when purchasing a new car. Of course, if you already have the cash for it, the smart decision would be to pay for it right away.

If you don’t have the money, you still have plenty of options you can choose from. It all depends on whether you want to own a car or not, and on what risks you’re willing to take.

For more information about what the process of buying a new car involves, you can subscribe to our newsletter to receive our latest blog articles. 

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Ana Darstaru

Content Writer at Squirrly
Ana has a strong sense of pragmatism and realism. Aside from the articles she writes for our lovely clients, she also loves testing new beauty products, and is obsessed with Pulp Fiction.
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