FINANCING VERSUS BUYING OUTRIGHT

Auctions can still yield bargains, too. But if you’re looking to buy here, do your research first – and make sure you know what you’re doing. Some of the cars will have been unloved, some may have patchy histories, while your only chance to see and hear the car running will be as it is driven into the auction room – and you won’t be able to drive it until you’ve bought it.

Chances are you probably don’t plan on buying your family car outright – after all, about nine in 10 British buyers now use some sort of finance to obtain their new car.

Financing a new or used car these days is usually done using a personal contract purchase, or PCP, deal. Here’s how it works: you pay an initial payment on the car, followed by a series of monthly payments for an agreed term – usually two, three or four years. During this period, you don’t own the car.

At the end of the term, you have the option to pay a balloon payment to buy the car, which is usually slightly less than what it’s worth; alternatively, you can give the car back with no strings, while in some cases you can use any equity you might have built up to put towards the deposit for your next car.

The great thing about using a PCP to buy your car is that it makes paying for it much easier, with a downpayment that’s a fraction of the full price of your car, and relatively affordable monthly repayments after that.

The downside, of course, is that interest rates on these deals are usually hefty, so the amount you repay – especially if you pay the balloon payment to keep the car – can often be vastly in excess of the car’s original list price.

Buying outright, on the other hand, gives you greater flexibility – you own the car from the word go, so you can keep it as long as you need and sell it whenever you want to.

You can always finance all or part of the purchase of your car with a bank loan, too. This will result in higher monthly repayments than a PCP – but because the interest rates are usually much lower, you end up paying far less in the long run. And, of course, you get all the flexibility benefits of owning a car outright.

WHAT ABOUT LEASING?

As its name suggests, leasing is essentially a long-term rental. It might look like a PCP deal on the surface – again, you pay a sum upfront, this time called an initial rental, which is followed by a series of monthly repayments over a fixed term – but there’s no balloon payment at the end.

Monthly lease payments are often cheaper than PCP repayments, but for your lower price you’re getting less flexibility. Once the contract is up, you have to return the car, no ifs and no buts – usually, there’s no option to buy the car even if you want to.

What’s more, a lease contract is more difficult to get out of if you hit financial difficulty. PCP deals include a clause by which, if you’ve paid at least half of what you owe (or you can make up the difference), you can give the car back and pay nothing more. By contrast, lease contracts tend to incur severe penalties for early repayment, which means you’re pretty much tied into them until the end.

That means they’re great if you’re financially secure and want to save yourself some cash compared with financing a car – but might be less than ideal otherwise.