You’ve decided it’s time to get yourself a new set of wheels but there’s still a decision that needs to be made: do you get a new, nearly-new or used car?
New – a new car is a vehicle that is a yet to be registered and that can be bespoked by you.
Nearly-new – cars that are less than three years old are generally classed as ‘nearly-new’. This includes pre-registered cars, which are cars bought from the manufacturer by a franchised dealer but registered as sold. These are often the cars you’ll see in the showroom.
Used – any car over three-years old is classed as a used car.
There are, of course, pros and cons to each of these options, so it’s worth knowing what they are before you focus your search.
- Will often come with a warranty
- If you’re buying an unregistered car, you can bespoke it to your own specifications
- Dealers may offer finance with a lower interest rate
- The newer the car, the more expensive it can be
- A new car depreciates significantly within the first three years. More so than at any other time in its lifecycle
- If you don’t get free insurance from your dealer as part of the purchase offer, you could end up paying more for it than with a used car
- Going for a pre-registered car means you can get the performance of a new car without the cost
- The vehicle may still come with a warranty
- If you choose a pre-registered car, you can’t bespoke it and you often can’t benefit from the offers dealers put on new cars, such as low interest finance deals or free insurance
- A pre-registered car will come with a warranty, but this will come into effect from the moment it’s registered
- You are still buying a vehicle within the period during which it depreciates the most
- Used cars are generally much cheaper
- Your vehicle won’t lose as much value as a new or nearly-new car
- You may be able to save up and pay with cash if you want, because used cars aren’t as expensive
- Insurance is often cheaper on a used car
- There is a much greater chance of having to fork out for repairs
- You will have to compromise on specification
- You may be faced with higher running costs, as older vehicles often don’t have the same fuel efficiencies as newer cars
New, nearly-new and used – how to pay
Once you’ve found a car you like, how you pay for it will likely depend on how much it costs.
New and nearly-new cars generally come with a hefty price tag and whilst you can pay for them with cash, most people will opt for car financing or will use a loan. As mentioned above, dealers will often offer attractive financing options too for new cars, which makes using credit to fund your car much more appealing.
If you choose to get a used car, paying with cash is likely a more realistic option but you may still choose to take out a loan. Car finance deals are also available.
Your options explained
Car financing allows you to spread the cost of your car over months or years. A period of 3 years is the most common.
There are two types of car financing – PCP and HP. PCP stands for Personal Contract Purchase, which is basically a loan to help you get a car, but unlike a normal loan, you won’t own the car at the end of the deal, unless you want to. Instead, you normally pay a deposit and a set sum each month and then either hand the car back at the end of the finance deal or if you want to own the car, you have to pay a final balloon payment, which is the amount the dealer expects your car to be worth once your finance deal ends.
HP stands for Hire Purchase and it works by allowing you to pay an initial fee (normally a 10% deposit), followed by fixed monthly instalments. At the end of the HP period, you will own the car outright.
If you get a PCP or HP deal from a dealer, you may be able to get a 0% or very low interest rate on a ‘flat rate interest’ basis, which may make these forms of car financing cheaper than other payment options.
If you choose to fund your car using a loan, you will take out a loan for the amount you need to borrow and use that to pay for your car. You will own the car in its entirety once you’ve paid off the loan.
Using a personal car loan to pay for a car can be the cheapest credit option but remember that you will also be paying interest on what you borrow, so you need to shop around for the best rate. What’s more, depending on how long you take the loan out for and how long you intend to keep the car, a personal loan may not be as flexible as a PCP deal.
Choose what’s right for you
Whether you choose a new, nearly-new or used car, it’s important that you choose the option that suits your circumstances. Whilst we’d all love a top of the range car, the reality is that we can’t all afford it and putting ourselves in a difficult financial position to get it isn’t advised.
Take stock of your finances and see what you can reasonably afford, factoring in upfront costs, any monthly repayments, insurance and running costs. You can then use this to work out what car – and payment method – is right for you.
Noddle is a credit broker, not a lender