How to Pay for Your Next Car Purchase

a woman buying a car

Purchasing a new car can be a bit challenging. So if you are considering making a car purchase but are unsure how to finance it, this post is for you! 

portrait of a young woman holding a car key at car dealership
Photo by Gustavo Fring on

What are your options, and what are their pros and cons? 

Keep reading to find out.

1. Cash

The cheapest and easiest way to pay for your car is by paying with cash; you go into a dealership, put your card or cash down, and walk out with your new car. 

If you decide to pay for your car with cash, I will advise that you put some of that payment on a credit card so you can get credit card protection for your purchase. 

When you put some of that payment on your credit card, the credit card company becomes jointly liable for that car. In case anything goes wrong, you can easily recover your money. 

2. Bank Loan

If you cannot afford to pay for your car with cash, the second best way to pay for your car purchase is using a bank loan. When you go for a bank loan, you will likely get a good interest based on your credit score. You can apply for a bank loan online from the safety of your house or go into a branch of your bank.

It is not advisable to apply for a bank loan and secure it with your property; you are liable to lose your home if you cannot make payments. Moreover, bank loans are not the same as payday loans; so don’t attempt to purchase your car with a payday loan.

Once you have your bank loan, you can go to your dealership and make the purchase.

3. Peer to Peer loan

Peer-to-peer lending platforms are a bit like banks, but you can get 

cheaper interest rates from them. You will pay interest because it is a loan, but your application gets approved quickly. You can then use the fund to purchase your car.

4. Credit card

Making your car purchase with a credit card will depend on your credit score, the amount on your credit card, and your credit allowance. If your credit allowance is just $4000, that is how much you can afford to spend on the card. 

Paying with a card can be expensive depending on what kind of interest rate you have on your credit card. Before making your card purchase with a credit card, check the interest rate and payment terms on your credit card.

Is it an interest-free credit card? Will the interest go up at a point? What is the APR on it? Ensure you understand the credit details on your credit card before using it to purchase a car.

Remember that as you purchase your car on credit, it depreciates; but your loan and credit card payments will not reduce; you keep paying interest on a purchase that depreciates.

5. Personal contract Purchase (PCP)

The personal contract purchase is when you make payment installmentally and a deposit over some time, and in the end, you get to keep the car. 

At the time of purchase, you would need to make a low deposit which is part of the price of that car. A certain period of payment will also be agreed upon. 

Over that period, you will make monthly payments, and once that period is over, you will be required to make a lump payment which is the remaining value of the car.  

If you do not wish to own the car after the duration, you can return it and walk away. You can choose to enter into a new contract for a new car and start the process again. 

With the PCP method, there is a limit to your mileage within the contract period. If you go beyond that mileage, you will be asked to pay a fee.

Also, there is an expected level of wear and tear; if the car has more than that level and you decide not to buy at the end of the contract period, you will be charged a fee. 

The benefit of the PCP method is that there is very little deposit, and the monthly payment is usually low at the end of 24 or 36 months. Also, if you are bored or tired of the car, you can change your mind, return it, and walk away.

6. Hire Purchase

The hire purchase is similar to the PCP option in that you pay a deposit and a monthly payment over a period of time.

However, unlike the PCP, which is about two to three years, the hire purchase is up to five years. 

The difference between both options is that with hire purchase, there is no mileage limit and no wear and tear payment charges.

They split the total value for the car with interest over the five years, which means you have more payments to pay monthly. 

At the end of the agreed period, there is no lump payment; the car is yours. The car is not yours until you have made the last payment. 

7. Personal contract hire (PCH)

The PCH option is not really a purchase but provides an opportunity to temporarily own a car. This method is similar to PCP; you pay a deposit, and then monthly payments are agreed upon over a 24 or 36 months duration. 

It is personal contract hire, so at the end of the agreed period, you will have to hand the car back to the dealership where you entered the contract. 

With PCH, you simply get to use a new car without having to own it at the end. The contract includes maintenance and servicing, so you do not have to worry about that.

There are some PCH contracts that are quite cheap and give you value for your money when you consider how much new cars depreciate.

Now that you know the different ways you can fund the purchase of your car without feeling a lot of pressure, I’m rooting for you to make the best decision.

Till next time.



Published by ronkeodewumi

I am a Chartered Accountant (ACMA, CGMA) and seasoned Management Consultant with about 16 years of experience driving the delivery of strategic solutions to complex problems of global firms. Through my blog, youtube channel, social media, tailored courses and downloadable material, I share information, resources and tips to help you manage your money better, grow your business, progress in your career, thrive in difficult times and create a life that is safe from failure, while being the best version of yourself. You will also find here links to my youtube videos where I share more nuggets to help you achieve and live your dream life. I am based in London, United Kingdom and always happy to connect with you via email (, social media or my contact page here.

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