You can pay for your car with cash. According to the Money Advice Service, this is often the cheapest way to buy a car.

Benefits:     

• you own it straight away
• you have no debts
• it will not cost you in interest
• you have no monthly repayments

Downsides:

• are you leaving yourself short?  Do you have emergency savings left over?
• the potential loss of interest on savings
• do you have money in reserve for servicing and repairs

You can buy your car using a PCP which involves paying a deposit followed by 2 to 4 years of fixed payments. You can then either hand back the car, pay a final lump sum to own the car, or part-exchange it for a new car.

Benefits:     

• new cars for teachers every few years
• low monthly payments

Downsides:

• you won't own the car during the period of the contract 
• watch out for mileage costs. A cheaper monthly payment will mean a lower mileage allowance.
• if you plan on keeping the car it can be expensive – take care to include all costs
• interest rates can be higher than other methods and interest will be charged on the full value of the car (minus deposit)

“I got my car through PCP…I regret it, I used to always buy outright, I’d NEVER get PCP again. I’d never get a new car again either, the loss in value is not worth it. I don’t feel like I saved money on MOTs either… (Cat)

 

“Don’t do PCP! I put a few thousand pounds deposit on the first PCP car... None of that was left when the contract was up so I had to take a second PCP. I wanted out a year early and it cost me £1000 just to get things fixed for it going back!!” (Denise)

Yet another option for financing a car is PCH, often referred to as leasing.  It is essentially hiring the car over a long period, often with servicing and repairs included. Like PCP it has a specified mileage limit, which you should be careful not to exceed.  

Benefits:

• you know exactly how much it will cost you each month
• no need to have savings for repairs and servicing, if included
• you can choose the term of the agreement (form 1 - 3 years) 

Downsides:

• costs more per month than PCP because service/repair costs are included 
• require a deposit 
• if you exceed agreed mileage extra costs will be incurred
• you will never own the car

Buying a car with Hire Purchase requires a deposit then fixed monthly payments over 2 to 5 years.

Benefits:     

• often little cash needed upfront as dealers may pay the deposit
• you will own the car outright after all payments have been made 
• there are (mostly) no mileage restrictions 

Downsides:

• more expensive monthly payments than PCP
• interest rates can vary and are often higher if you have no deposit
• the car could be repossessed if you miss payments 

“We were stung a good few years ago when we bought a car through finance. It was in the garage 13 times in 1 year. Because we had the finance, they would only fix it. If we had taken out a bank loan and bought the car that way, they would have seen it as fully purchased and they would have replaced the car instead of fixing it. Lesson learned!” (Shona)

 

“I was stung over 20 years ago, bought a new little Peugeot 106 as a newly qualified teacher, paid with finance. Awful car crash (not my fault) and the car was written off 3.5 years into my 4-year deal. The insurers just cleared my debt leaving me with no car. I’d paid £8,400 for an immaculate car, yet as it belonged to a finance company until my final payment was made, I was powerless to negotiate. Decided ‘never again’ and have saved up for cars since.” (Claire)

Another option for teachers is to get a personal loan, completely unrelated to the purchase of the car.

Benefits:     

• you pay upfront and own the car immediately
• there are set monthly payments
• you choose the term of the loan
• you can shop around for the best interest rate

Downsides:

• if you have a poor credit rating, the rate offered could be high (which can be the same with any form of borrowing)

“I purchased my car through ********* and have gone through my bank to finance it. My previous car needed a lot of work doing to it and I couldn’t afford another outright, so this was the best option for me. Everything’s been fine so far.” (Lucie)

If you are careful, a credit card could be a good option for purchasing a car.

Benefits:     

• you could use a 0% purchase credit card and have no interest costs
• you can set your own monthly payments to ensure it’s paid off by the end of the 0% period
• cashback or rewards credit cards could earn you points
• flexibility - you can pay more each month if you have spare money and get it paid off earlier than planned

Downsides:

• DON’T do this with a credit card with a high-interest rate
• do check if you will be charged a fee for using a credit card
• some dealers won't accept payment by credit cards 
• it can be tempting not to pay the full amount thinking you will pay more next month; this could be a slippery slope….

With the price of cars now, it is worth taking your time and calculating how much your purchase is really costing you. Don’t forget to include running costs in your calculations. You can find approximate costs at Parkers.

How much do your cars currently cost you each month?  How much do they cost you over a period of years?  Are you happy with that?  

If having a new car is really important to you, then you will perhaps be happy to spend a large chunk of your teaching salary on your car. However, if a car is simply a method of getting from A to B, then your priorities may be completely different. 

Neither is right or wrong, as long as you are thinking about what is important to you and not simply spending money to "keep up with the Joneses!"  

In my case, I have no interest in cars and would rather buy a second -hand car and keep it for years, so that I have more money for things that are more important to me, liking holidays and saving up for my campervan! 

Remember that buying new cars is costly. You could save up to 30% by buying second-hand and be able to buy it outright.

“Our 15-year-old CRV is a workhorse and cost less than £2000. In the 4 years we’ve had it, it’s been in the garage for minor things twice. That’s less than £600 per year or £50 per month…and it still gets us from A to B! And the longer we have it, the cheaper that per month figure gets!” (Mel)

I talked in an earlier post about how saving £60 a month on supplier bills could help you to pay off a £2500 credit card 20 years earlier, compared to making minimum payments!  If you put that £60 into an average mortgage, you could be mortgage-free 3 years sooner! 

The potential to save on car costs is even greater than this!  Let's say you compare costs and save £60 a month on your bills AND you manage to reduce your car costs by £100 per month. 

That £160 will help you to pay off the credit card in 1.5 years AND save you £4,500 in interest!  

If you chose to put that £160 into the average mortgage it would save you a whopping £16,562 in interest AND get your mortgage paid off over 6.5 years early!

That sounds like a pretty good deal to me.  

Don't ever think it is not worth comparing costs.  Even a little cost reduction by comparing car deals for teachers can add up to a great big saving!