Should I buy a new car?

Like the idea of purchasing a brand new car, but want the best car for your money? It's worth comparing new and used car finance options

Christofer Lloyd
Jun 22, 2020

Buying a new car is an exciting luxury for many drivers; a chance to get a car with the latest number plate, built to your exact specification that no one else has driven. However, like all luxuries, buying new can prove costly. New car prices are much higher than those of even nearly-new equivalents, since cars lose value fastest when they're new, with the rate slowing down as they get older.

This means that whether you take out car finance or pay cash, getting a new car is typically the priciest way to change your wheels. This is true whether you opt for Hire Purchase - where monthly payments cover the whole cost of the car - or PCP finance, where monthly payments cover the difference between the car's new price and what it's expected to be worth at the end of the contract.

Yes, with a brand new car you know the car is in perfect condition and has a full warranty, but with modern cars having up to five years' warranty cover - or even seven years' warranty cover with a number of models - there's no need to pay top dollar on a new car simply to get a car you can trust. Pick the right three-year old car and you can still benefit from four years' warranty - more than many new cars come with.

Even cars that are a year old are much cheaper to buy or finance than brand new equivalents - and come with most of the warranty left - so you can get a car that is practically new but without the new car costs. Keep reading for more on whether to go for new or used and how to spot a good car finance deal - however old the car is. 

Car finance: don't be seduced by bad value offers

When purchasing a brand new car - something a vast majority of drivers pay for using finance - it's crucial to assess the value of the whole finance deal and not be drawn in by heavily promoted offers that may actually prove to be bad value. New cars often come with glitsy sounding 'deals' but many of these could cost you more than the standard finance offer.

Things like a three-month 'payment holiday' - where you don't have to pay anything for three months - may sound generous, but since you're paying interest on the car (except with 0% APR offers) having the car for three months before you start paying for it means that you end up having to shell out more in interest charges. And monthly payments - when you do start paying - will be higher, as you're spreading the same cash price, plus greater interest across fewer months.

Similarly, putting down no deposit increases the amount you pay - both in terms of higher monthly payments and more interest overall, as you're borrowing more money.

Two of the simplest ways to assess the value of a car finance deal are considering the APR charge - which shows the total cost of interest and other compulsory finance charges - and any deposit contributions, which are essentially discounts. The lower the APR and the larger the deposit contribution, the better the deal is.

If you go for PCP finance - where your monthly payments effectively cover the difference in value between the car's price at the start of the contract and its predicted value at the end of the contract - things are a little more complicated. Cars that are worth a lot at the contract - those with strong residual values - will have lower monthly payments than those with a similar cash price that are less desirable as second-hand purchases - even if they have an identical APR and deposit contribution.

Compare like-for-like quotes - for new and used cars

The easiest way to gauge which deal offers you the best value - whether for a new or used car - is to get like-for-like finance quotes for different models (the same finance type, deposit amount, contract length and mileage allowance) and see which option offers the lowest monthly payments.

Provided you use the same contract terms, doing this will shown you which car will cost you the least on a level playing field where you put in the same amount upfront and run the car for the same amount of time. Do this and you'll see the combined effect of any interest charges, deposit contribution discounts and different cars being worth different amounts at the end of the contract.

As a result, it's best to focus on the monthly payment for each car rather than the initial cash price - since the cash price isn't directly linked to the monthly payment you make with PCP finance - the most popular type of car finance.

Used cars: lower cash prices means lower monthly payments

If your finances are tight - or you want to get the best car for your monthly budget - it's worth considering whether you can justify the additional cost of choosing a new car over a nearly-new or used equivalent. New cars lose value very quickly as soon as you drive them away, and even if you finance them, you have to pay for this loss of value.

That means that for the same monthly payment as a brand new small hatchback you may be able to get a one-year old medium hatchback or potentially a two-year old crossover. If you're open to a three-year old model, meanwhile, you might be able to afford a large family car or an SUV. As a result, going for a relatively new car that is a year or two old can be a good compromise for many drivers, giving you most of that new car feel and getting you a desirable car for far less than a brand new equivalent.

To demonstrate how quickly finance costs drop for used cars compared with brand new models, the Citroen C1 - one of the cheapest new cars to finance - is a good example. While a brand new C1 could cost you just over £150 per month - even after the current £3,200 deposit contribution discount - going for a three-year old equivalent could slash that cost to just £86 per month (with identical contract terms).

Meanwhile, a two-year old model is around £106 per month and a one-year old, barely driven version just £121 per month. That means that even going for a one-year old model over a brand new one could save you 20% instantly.


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