Note From Kalen: Of course, the best car payment is no car payment, but I like to offer all perspectives. If you have to finance a car, check out the article…

There is a reason why so many of us covet that ‘new car smell’. There are few days sweeter than new car days and yet, for most of us, it’s a day that doesn’t come around all too often. Buying a new car is, after all, a major financial decision and one that shouldn’t simply be made on the fly.

It used to be quite simple – you saved up for months or years to buy the car of your dreams and on the day you’d finally managed to squirrel away enough, you drove your new car off the forecourt. Today, however, there are so many options to consider when buying perhaps the second most elaborate purchase you’ll ever make.

Cash or Savings

This is the classic option and is still the cheapest in terms of how much you’ll eventually end up spending as it will be in one lump sum with no interest to speak of. However, this will not only mean waiting until you can actually afford the car you desire but that you’ll end up with less money set aside in case of an accident. Also, take into account that you won’t be covered by your credit card’s purchase protection if you pay 100% in cash, so you might want to consider splitting the bill for that reason alone.

Personal Loan

This means applying to your bank or building society for a loan either online, in person at the branch or over the phone. Note that you will only be able to successfully apply for a personal loan if you have a healthy credit rating, particularly if you’re after an unsecured loan. If you are tricked into taking out a secured loan, meanwhile, you could end up putting your home at risk so always make sure you read the fine print before signing anything! For short term finance, this might still be your best options though, as interest rates are generally low.

Personal Contract Purchase

A PCP often means a longer term and lower monthly payments than a personal loan. You will also end up paying more in the long term. With this option, you’ll generally end the term and be able to either trade the car in, hand it back or pay one final ‘balloon payment’ to take the car home for good. The deposits required here are often as low as 10% and repayment terms are flexible, but you don’t technically own the car until you pay the final balance at the end of the term.

Car Loan

This refers to a loan specifically made for a car, with the vehicle itself secured against the loan. The positives here are that you’ll get guaranteed car finance regardless of your credit rating, but the loan terms are often less forgiving than for personal loans. It is, however, perhaps the most affordable option for those who are taking their first steps onto the open road.