There are a wide range of options when it comes to purchasing a car, so we’ve weighed up the pros and cons to help you choose the right option for you.
While new research from GoCompare has found that buying a new car outright is still the cheapest way, motorists are increasingly attracted to alternative purchasing options.
Personal Contract Plans (PCPs) have grown to be hugely popular but car subscription schemes could potentially grab a sizeable chunk of the market.
Leasing, hire purchase agreements and personal loans are other alternatives for those who want to get behind the wheel, but don’t have the cash to hand.
Just remember that you’ll need to be able to manage your money responsibly and afford the repayments if you choose not to buy your car outright.
If you get a lease, you don't own the car. You won't have to pay a deposit up front and you give the car back at the end of your contract.
A hire purchase agreement allows you to own the car at the end of the contract, but the finance company retains ownership during the contract.
If you have a PCP contract, you don't own the car until you've paid a balloon payment at the end of the contract, but it's not a mandatory payment. You can hand the car back to the dealership at the end of the contract.
If you take out a personal loan to buy the car, the loan is secured against the car and you must make repayments. If you can't make the repayments, it'll negatively impact on your credit record and could lead to County Court Judgement (CCJ). A CCJ could allow bailiffs to repossess your possessions to the value of the outstanding finance, but not necessarily the car.
If you pay with cash, you own the car straight away.
A lot of factors influence whether it's cheaper to buy or lease a car, such as the number of miles you drive and how well the car retains its value.
Generally, if a car has a good resale value then you're better off buying it. After three years you'd own a valuable asset, whereas with a leased car you'd have nothing.
But if the car plummets in value then it's probably cheaper to lease it, as you won't be bearing the brunt of the depreciation.
You can use websites like Autotrader to see the approximate value of your vehicle on the second-hand market.
Then you can work out how much those three years of driving will cost you and compare that to the price of a lease car.
Just don't forget to factor in the deposit you pay as well as the monthly cost.
You can take out a personal loan with a car dealer, bank, building society or perhaps even a peer-to-peer lender.
You apply to borrow a set amount with fixed repayments over an agreed term to settle the loan amount plus interest.
The loan is ‘unsecured’ so it’s not connected to the car, your home or any other asset you own. Just make sure that you have read the terms and conditions before making a decision and that you're able to make your repayments comfortably.
This is basically like long-term car rental – you won’t have an option to purchase the car at the end of the term, you just give it back.
You usually have to pay a larger sum as the first payment and then lower fixed monthly payments for the rest of the term.
A finance company buys the car, while you pay a deposit and fixed monthly instalments for a set time period, usually between one and four years.
Before the contract starts, the finance company gives the car a guaranteed final value (GFV), which you can pay at the end of your contract term – sometimes called a ‘balloon payment’ – to take full ownership of the car.
Alternatively, you can give the car back and use the value above the GFV (if any) towards the deposit for another car.
Subscription is a relatively new concept similar to medium-term car hire, where everything except fuel and fines is included in one fixed monthly cost.
While there are a range of new car models to choose from, the car itself may have been driven by another subscriber before you.
An example of a subscription contract is a rental period of three months and after that it's renewable monthly. Alternatively, you can switch cars every three months.
You’ll have to pay a deposit of typically around 5-10%, and then pay fixed monthly instalments over an agreed term which covers the purchase price of the vehicle (minus the deposit) plus interest.
"There are now more options than ever available to drivers looking to buy a new car", said Lee Griffin, founder and president of GoCompare.
"In fact, there are several ways of having a car without owning it at all. Personal Contract Plans are still a popular choice but have become more expensive as residual values have fallen.
"Leasing can get you into a new car at the lowest monthly cost, but the car is never yours to keep and now subscription schemes can provide flexible car ‘ownership’ for three months at a time with everything except fuel and fines included.
"When looking at your options think about what’s most important. Do you really want to own the car or just drive it for a few years or months then give it back?
"Depreciation may be £10,000-£12,000 on a £25,000 car after three years, so you should factor that into your thinking too if purchasing was your first choice.
"Do you want the hassle of selling the car yourself when you want to change it? And do you need a car all year round? Perhaps a car subscription service for six months is enough.
"If you’re not great at taking care of a car you might leave yourself open to extra charges for undue wear and tear on a lease, subscription or PCP cars so watch out for those potential extra costs.
"It's important to consider insurance as the concept of ‘owner’ and ‘registered keeper’ can vary under the different options. For example, with leasing, the lease company may be the owner and registered keeper, not you. As a result, you may find fewer insurers offering cover which can mean less choice and potentially higher premiums."
If your leased car gets written off or stolen, the car insurance pay out might not be enough to repay the finance company what you owe - that's where Guaranteed Asset Protection (Gap) insurance comes in.
Gap insurance will cover the difference between what the insurance company pays out and what you still owe on a leased car.
Bear in mind that you should weigh up the good and bad points of your options carefully before committing.