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Financing a Used Car Purchase

Financing a car purchaseThere are a number of ways to fund the initial purchase of a used car, so here are some top tips for saving you money towards your car budget:

  • Paying cash
    Buying a car outright with cash you’ve got in the bank is often the best way to both get a new deal and to avoid borrowing any money which can attract interest costs.
  • Saving up
    Whilst it can take time, saving up for a car can be more rewarding than borrowing the money for it. Over a long enough period and using savings schemes such as ISAs, it may also grow the about saved with interest being added to the total.
  • Credit cards with interest free purchases
    Depending on the cost of the car, dealers may allow you to pay for all or part of the cost of a car on a credit card. Ordinarily this should be avoided, however with many credit card companies offering interest free purchase periods, it can be a cost effective way of spreading the initial costs of buying a used car. The dealer may ask for you to pay credit card fees, but negotiating can help reduce these costs e.g. offering to pay half towards the transaction fee.
  • Balance transfer credit cards
    If some or all of the costs for a used car are on a credit card, it may be possible to transfer that balance to a longer period on a balance transfer deal. Doing this multiple times allows the cost of a car to be spread over a much longer period with minimal costs compared to a full loan, e.g. small percentage fees compared to many months of higher interest rates. A good credit rating is required to do this over a longer period however.
  • Low interest loans
    If buying a used car on finance with a loan is the only way to fund (or partially fund) its purchase, shop around for a the cheaper loan and compare the total costs for the finance and not just the APR. Varying the period of the loan (e.g. shorter periods) can significantly reduce the overall cost if your monthly budget can accommodate the higher payments. Best value loan tables can be good for comparison, as well as shopping around for deals with existing banks or building societies who may offer preferential rates to existing customers.
  • Try to avoid dealer finance
    If at all possible, try to avoid taking car dealer finance as they often offer the worst interest rates and generally include a commission payment that goes to the dealer. Loans can also be secured to the car, so the car can be taken back if you default on any payments even if you’ve been paying it off for years. Ultimately this can be the worst deal for you as a buyer and should be a last resort.

So that’s a summary of our tips to budgeting for a used car purchase and how to save money. Please add any other tips you have in the comments below.

 

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