How to buy a car

Our simple guide to choosing your next motor, getting the best deal and staying in the driving seat when it comes to your finances.

Whether you’re looking for a nippy city runaround, something with space for the kids’ bikes and muddy dogs, or an eco-friendly electric hatchback, choosing your next motor is only the start.

You also need to consider how to pay for it, budgeting for insurance and servicing, as well as fuel costs, warranties, road tax and other potential charges such as city low emission zones. It can seem daunting before you even set foot in the dealership, but buying a car doesn’t have to be challenging.

This comprehensive step-by-step guide has all the information you need to give you the confidence to choose the right car, get the best deal and cover your costs for as long as you own it.

Budget and finance

The first step in the car-buying process is working out what car you can afford, and how you plan to pay for it - with cash you have saved up, a loan, or car finance.

Whether you are going to pay up front, or monthly over several years, make sure you consider the total cost of ownership, not just the purchase price or monthly payment.

Road tax, fuel and insurance will all add up every month, and you will also have to factor in regular maintenance and one-off costs such as repairs or an annual service.

Cash

If you have been putting money away in a savings account, then you should have a good idea of how much you have to spend.

But think carefully about whether to empty your account to buy a car. If you are worried about paying for new tyres or repairs down the line, then keeping some money in the bank may give you peace of mind.

Loans and finance

Taking out a bank loan or car finance product will let you spread the cost of the car over a number of years, but check your budget carefully to make sure you can afford the monthly repayments.

Be aware that the interest rate you are actually offered will depend on your personal circumstances, and may be higher than the rate advertised.

And lenders will carry out a credit check - click here to find more about your credit score.

If you do take out a loan, remember that cars generally depreciate, which means that their value goes down over time. Depending on your loan term, this could mean that your outstanding debt could be higher than the value of the car.

Different types of finance

Hire Purchase

Hire purchase, or HP, is the most straightforward type of car finance. You pay a deposit, and then make monthly payments with interest over a set period, typically between three and five years.

At the end of the term, you own the car outright with nothing more to pay.

As with other finance arrangements, the car could be repossessed if you fail to make payments, and missed payments will affect your credit score.

Personal Contract Purchase

With PCP, the finance provider predicts how much the car will be worth at the end of your agreement, and subtracts that agreed future value from the price of the car.

Your deposit and monthly payments only have to cover the reduced amount, and then at the end, you have three options:

• Pay the agreed future value, also known as a balloon payment, and you own the car outright.
• Give the car back with nothing more to pay, as long as it is in good condition. PCP deals usually have annual mileage limits, with a charge for exceeding them.
• If the car is worth more than the agreed future value, it means you have equity, which you can put towards a deposit on your next car.

Here is an example to help explain how it works in real terms.

You buy a car worth £8,000 on a three year, 8,000 miles per year PCP deal.

The finance company predicts the car will be worth £3,500 at the end of the term, so your deposit and payments have to cover £4,500, with interest added on top.

At the end of the three years, the car is actually worth £4,000.

You can pay £3,500, and the car is yours.

As long as it is in good condition, with fair wear and tear, and you have not exceeded 24,000 miles, you can hand the car back and walk away.

If you trade it in against another car, you will have £500 towards your deposit.

PCP deals are popular because the monthly payments are lower than HP, but always consider the total cost of the deal, including the balloon payment, and remember that you don’t own the car unless you pay it.

Leasing

Leasing, or personal contract hire, is just what it sounds like. You pay a monthly fee to use the car for an agreed term, and then hand it back at the end of the lease.

Leases are typically over 24, 36 or 48 months, and like PCP, have agreed mileage limits, with penalties for exceeding them. The deposit is often three or six times the monthly fee.

Unlike PCP, at the end of the lease you do not have the right to purchase the car, although some leasing companies may allow this.

Take care when viewing car lease deals online - prices are often listed without VAT, which you would have to pay as a private buyer.

And as with PCP, remember you will not own the car at the end of the finance term.

Leases can include maintenance, where servicing costs are covered by the monthly payment.

Some car manufacturers may also offer  new car subscriptions, where all costs apart from fuel are included in the monthly payment. These can have shorter terms, starting from three months, but may turn out to be more expensive over time, even when you take costs such as insurance and new tyres into account.

Choosing the right car

Apart from your home, your car is likely to be the biggest purchase you make, so do your research.

Think about what you need from your car. How many people do you regularly carry? Will you need a big boot for a pushchair? Are you more likely to have short local journeys or do you have regular long trips? Will older or less mobile passengers be able to clamber into the back of a coupe? Is it important to have a prestige badge? What about eco-friendly credentials? Do you want a new car, or are you looking at the used market? Are you ready to take the leap into an electric car? Only you know what really matters to you, but making a list will help focus your mind, and narrow down your choices.

Once you have a good idea of what you need, you can start looking at makes and models - websites such as autoexpress.co.uk, autocar.co.uk and whatcar.com are a good place to find reviews, information, reliability stats and buying advice, for both new and used cars.

If you are considering an electric car, they also have facts about real world range, charging times and issues, and future developments.

You should also think about how safe your car will be if the worst happens. The European New Car Assessment Programme, known as Euro NCAP gives every car on sale a safety rating out of five stars - click here to find out more.

Test drives and inspections

If you are buying a new car, then contact the dealer to arrange a test drive in your chosen model.

Take your time to make sure the car suits all your needs. Drive it on the types of roads you use, rather than a short route suggested by the salesperson. Take it home to make sure it fits in your parking space, and check items you carry regularly, such as pushchairs or golf clubs, fit in the boot. Is it easy to fit a child-seat, and can your kids get in and out comfortably?

The model you test drive may not be the same specification as the actual car you order - dealer demonstrators often have expensive optional extras. You may fall in love with the panoramic roof, or heated seats only to find your own car doesn’t come with them as standard. Go through the specification carefully with the salesperson.

For a used car, you should be able to test drive the actual car you are buying. Again, check it suits your needs as you would with a new car, but you should also check its condition.

Make sure you view it in daylight, ideally in good weather, so you can see any dents or scratches or marks and stains inside.

The AA has a comprehensive guide to what to look out for on a test drive.

If you find a car you like, then a mechanical inspection may give you peace of mind - motoring organisations such as the RAC will send an expert to check a prospective purchase for you.

And you should check the history of a car before you commit to buying it. Services such as Autocheck from Experian [www.autocheck.co.uk] will tell you if a car you are interested in has outstanding finance, or is an insurance write-off. It is possible to buy a car that has been written off and then repaired, but the seller should tell you, and give you details of the level of damage.

Doing the deal

It’s not unusual to haggle over the price of a car, so don’t be shy about trying to get a better deal.

But it’s not just about trying to knock a few hundred pounds off the asking price.

Ask if there are any extras that can be included, such as a servicing plan.

And a lower interest rate on finance may be worth more in the long run than a discount.

If you are trading your old car in, consider the “price to change”. A dealer may not be able to discount your new car, but paying you more for your trade-in will have the same effect. You should also check if a car-buying service will give you a higher price for your old motor.

A dealer may offer you added extras, such as paint protection or an extended warranty. If you want an extra like this, always check if you can get it cheaper from another supplier.

One important protection to consider if you are buying on finance is GAP cover. If your car is stolen or written off, the insurance payout may be less than your outstanding finance balance. GAP covers you for the difference. Your car dealer will offer it to you, but get a quote online to see if you can get a better deal elsewhere.

What’s next

You’ve found the perfect car, done a great deal, arranged the finance and got the best deals on all the little extras.

But before you drive away, you need to register the car in your name, pay road tax and arrange your insurance. Here is a handy step-by-step checklist from the government.

It is also a good idea to make a budget, so you can plan for expenses such as servicing and maintenance, to give you peace of mind that you won’t have any nasty surprises down the road..

Happy motoring!