Advice on paying for your first car

Okay! You have recently passed your driving test, and are eager to buy that first car. Let’s talk MONEY.

There are various options available depending on your personal situation but here are a few to get you started…

Cash

This is the easiest. This means you have been saving up for a good while. You may also find that sellers of vehicles might be a little unsure about taking such a huge amount in notes. They may worry about forged bank notes. So you can put the money directly into the seller’s bank account, before you take the vehicle away. Paying cash can give you bargaining power, to push down the price a little. To make the cash payment directly into the seller’s bank account, you can approach your bank and discuss the various ways. BACS transfer is the most popular way to move cash from one account to another, or to another bank entirely. And you won’t have to wait for the money to clear, it is cash and not subject to delays for clearance. Paying in cash also avoids interest charges associated with setting up a loan or finance agreement. Do forget to get a signed, dated, detailed receipt or bill of sale.

Personal Loan from a family member

Some people are lucky enough to have a family member that is willing to offer them the money at no interest at all. However, this depends on your personal situation. But get the details straight, if Dad says you can pay him back when you can, at least get some sort of time scale agreed, before it leads to bitterness when you take rather too long to give the money back. Fix up a workable schedule and stick to it.

Get a bank loan

This depends on whether or not you are a good payment “risk” – have you got the ability to pay the bank back the money it loans you. You will be refused if you do not reach their criteria. There are many banks and building societies with many different products to chose from. Once again, compare, contrast, and research. You might also be required to put down a cash deposit.

Get someone to buy it for you

Some fortunate people have parents buy their first car, or perhaps a husband or wife will offer to buy them a car, when they pass their test. Nice! Let’s hope you have some say in which car, and how often you actually get to drive it. Try not to be pushed into something too big or too small, just because the person with the purse strings likes it. You are the one who has to drive it on a regular basis, afterall.

Get finance directly from the car dealership

Most dealerships can offer car finance deals. Convenient, but expensive. The dealer will be making a commission (which you will be paying for) for selling you this deal. Be very careful about the details if you decide to go this way. Take advice, check out the interest rates, work out how much it will eventually cost you, and don’t be afraid to say no, if you don’t like the idea. Once again, there may be a requirement to make a cash deposit.

Home equity loan

Home equity loan is another way of raising money for a car purchase, and can be at a reduce interest rate, lower than a car finance loan, as it is a secured loan, with the house as security. This means, if you die or do not pay it back, the seller will still be paid as they can apply against the security of the house. You may not even have to pay a deposit if you have this sort of loan. Check with a reputable financial advisor for details, as your home is at risk if you do not pay, and may be forced to sell your home, so make certain that you do not over stretch yourself and be sure you can afford to pay the monthly repayments.

Shop around for deals

Some dealerships are desperate to move their cars off the forecourt and onto the customer and you may get a good deal. See what you can negotiate. Perhaps extended warranties, a year’s free insurance/road tax and MOT, for example.

Shop around for finance deals

There are many finance companies , banks and building societies, all eager to take your money. Shop around for good interest rates, and take your time to work out what’s what in the world of finance. In these days of recession, credit can be a dirty word.

So, there are many ways to raise the money for you first car. But take advice, don’t jump at the first car you see. Don’t take that XJSi 3.00 because you might be able to afford to buy it, but can you afford to run it? Cars have to be fuelled, serviced, taxed and insured. It’s a big financial commitment.

Insurance

Remember, the more expensive the car, the higher the replacement costs, the higher the insurance. The bigger the engine size, the more fuel you will use and the costs of fuel are ridiculously. Insurance costs also take into account where you live, and where you park the car overnight. Your age and experience will also have a bearing on the cost.

It’s a good idea to get some details of the type of car you might consider buying, and contact some insurance companies to see what they can quote. Check out our insurance page for more information on the policy that’s best for you.

The cheapest type of insurance is just 3rd party, This may not be commonly available, but if you go this way, remember that if your car is damaged in fire or stolen, you will not be paid out.

Next up, 3rd party, fire and theft. This is self-explanatory.

Fully-comprehensive. This is the most cover you can get, and is a requirement of car finance, car loans and bank loans, as the loan is secured against the asset, which is the car. If you wish you can have add-ons, for windscreen and later, no claims bonus protection.

The world of insurance is another planet, with hundreds of insurance companies and a myriad of terms and conditions to plough through, so take advice, do your homework, and read the small print.