A few months ago, I wrote a case for saving money on the small stuff. It’s not always popular financial advice, and maybe it doesn’t make you a millionaire, especially if you’re saddled with lots of big expenses that you can’t do anything to reduce. That doesn’t mean it’s not worth doing.
Today I wanted to share another view that isn’t always popular, by making a case for buying cars on credit.
I’m sure you’ve read it all before; don’t buy cars on finance. It’s cheaper in the long run to run an old banger. It’s not worth splashing out on a more expensive car, particularly if you don’t have cash in the bank to buy it outright. Blah, blah blah. To be fair, it’s not a view I disagree with. But it can be pretty unhelpful when you’re stuck with an unreliable and increasingly expensive motor.
The case for buying an old car outright
Buying and running an old car is a great idea if:
- You have the money to repair it as and when required (which is likely to be more frequent than a newer car) or you can fix it yourself
- You have the money to replace it completely if (when?) it completely gives up on you
- You can afford the time of being without a vehicle- that might mean you’re able to walk to work or your boss doesn’t mind you arriving late. It might mean stumping up the cash for taking taxis whilst your car is being fixed or the flexibility to work from home.
- You have the head space to deal with car repairs amongst the other demands on your time.
To be honest, these things aren’t the case for the majority of people.
The case for buying a car on credit
Buying a car on credit can be a good idea if any of the following are important to you:
- Peace of mind
- Buying on credit means its affordable NOW
- The reasons for buying an old car outright (above) are not true for you.
If your car has become unreliable, is frequently having problems or is costing you a lot of money to maintain, it might not be worth (or feasible) waiting until you have the cash saved up for a better car. If using credit buys you the peace of mind now, then it might be sensible to do that now. You don’t have to feel guilty about that.
Emotion beats logic
Most people can 100% see the logic behind the old advice of buying what you can afford. However, not all decisions we make about money are rooted in the most logical approach. They must also meet our emotional needs.
When considering the vehicle we drive, reliability and peace of mind are key factors that protect our mental health. In my experience, spending money in a way that is good for my health is one of the best ways that money can be spent.
Things to consider when buying a car on credit
Just because you may need to buy a car on credit, doesn’t mean there aren’t ways to still protect your budget (and maybe create some space in your budget to save up towards your next replacement vehicle!) Here are a few ways of keeping your monthly car costs down:
- You don’t have to choose a new car, you can get finance on second hand cars. Choosing a second hand car is likely to be the better option financially, although UK “scrappage schemes” and new car offers occasionally mean this isn’t the case
- One of the benefits of newer cars is lower running costs. Try to look at fuel efficiency as well as road tax costs, as savings here could offset some of the cost of credit. (Swapping from a 10 year old car to a 4 year old car is saving us £50+ per month on fuel. That’s a difference of over £600 per year!)
- Don’t rush. Like with any large purchases, if you’re able to take your time you’re more likely to be able to drop on a better value car. Shopping when the need is urgent almost always leaves you with lower value options.
- Don’t be (too much of) a brand snob. Even for someone like me, who doesn’t have their eye on top of the range cars, you might still have some bias towards a particular brand. This may mean you’re paying a premium that isn’t worthwhile, or it could mean you’re attracted to cars renowned for having problems (like when everyone seemed to be buying Fiat 500’s even though every Fiat 500 owner said how many issues they’d had?!)
- Shop around for credit. There’s no point paying more interest than you have to!
- Factor in insurance costs. If you can, get a quote before you set your heart on something. This can make a difference of a few hundred pounds per year.
Is buying a new car on credit for you?
Financially, from a pounds and pence perspective, buying an old car generally works out cheaper than buying a new (or newer) car. However, it depends on lots of factors- like not buying an old car that’s a complete dud- and whether you have the time and emotional capacity that an old car may take up.
Buying used cars with cash has always worked out well for me, and it has for many people. That doesn’t mean it’s right for you though.