Which is the best financial option when looking to buy a car? - Sarah Coles

If you have the cash to buy it up-front, that’s usually the cheapest option. There’s an exception to this rule though, because if you’re planning to buy a brand new car and then sell it and buy another in a few years, it will expose you to the worst possible years of depreciation in the value of the car.

When you add in the cost of insurance and maintenance, overall, it could end up more expensive than just leasing a new car for three years.

Some people swear by leasing, because they can always drive a new, reliable car, and never worry about maintenance or service costs. And although there’s an up-front fee it may be less than £2,000. Others would much rather own, face the cost at the outset, and not have monthly payments of hundreds of pounds to worry about.

They also have more flexibility built in, because if they change their mind and hang onto the car for longer, they can save money.

If you want to own the car, and don’t have the cash available, there are a few ways you can borrow to buy. Some people may be able to use a 0 per cent credit card for this – and borrow for nothing - making it your cheapest option. However, you will need a good enough credit rating to get the card, and enough available credit.

It’s also worth checking that whoever you’re buying from will let you use a card. You also need to be able to pay this back before the 0 per cent period runs out or you’ll pay through the nose for this borrowing.

At the moment, you can get deals for up to about two years, which will mean some fairly punchy monthly payments.

The next most affordable option on the list tends to be a personal loan – from a bank - assuming you have a reasonable credit rating – which lets you spread the cost over between one and seven years. At the moment, the average rate on offer is 7.41 per cent, although the lower the sum you’re borrowing, the higher the rate tends to be.

It means that while you could borrow £20,000 at 5.6 per cent, if you want less than £3,000 you’ll pay more than 12 per cent. You can also get a loan from the dealership, but don’t wander into this blind. You need to go armed with an idea of the best possible rate available elsewhere, so you can compare it before you take out a loan.

The dealership may also offer hire purchase. This is a kind of loan, but instead of borrowing the cash and owning the car immediately, the finance company owns the car until you’ve made the final payment, so if you miss payments they can take it back. They’ll also take a chunky deposit at the outset.

Both these things mean it tends to be easier to get an hire purchase deal than a personal loan, so it may be a good option if you’re worried you won’t qualify for a normal loan.

The offers vary dramatically. Some will have low rates in order to shift new cars, some even at 0 per cent. Others will set the APR according to your credit record and how much you’re borrowing. It can easily be anywhere from 8 per cent to 20 per cent or more.

The most expensive option overall (if you want to own the car at the end) is personal contract purchase (PCP), but this suits some people best, because the monthly costs are lower than any other approach (including leasing).

It’s why it’s the most popular way to get a new car. Essentially you pay a deposit and agree how long the contract will last.

The dealer will then estimate how much the car will be worth at the end of the period – and take that away from the total you need to borrow. So if, for example, you get a car costing £20,000 and it’s expected to be worth £10,000 at the end of the deal, you’ll only be borrowing £10,000.

You’ll need to stick to a mileage allowance, and you won’t own the car during this period so you can’t sell it. After the contract ends, you can return the car and start again, or pay the ‘balloon payment’.

You might be offered 0 per cent interest on the deal – although this may be balanced against a higher balloon payment that you need to factor in if you ever want to own the car.

Where interest is charged it’s at a similar rate to hire purchase – between 8 per cent and 20 per cent - or more depending on your credit record.

If you’re buying a second-hand car, the rates tend to be higher because they’re making less on the car sale. And bear in mind that you need to stick to mileage limits and if you want to return the car it needs to be in perfect condition, or there will be penalties.

It's worth knowing that the car dealerships only offer PCPs because so many people tend to get a new car when they get to the end of the deal, and go back to the dealer for a new model. They get loyal, repeat custom, paying a premium for a new car every time. If you’re happy to do this, then it may suit you well.

As for me, I’m opting to buy another older car, ideally in a horrible colour, with far too little power, so nobody else will touch it with a bargepole. I can run it almost entirely into the ground and then give it to my youngest to get her to school. At that point, I’m hoping there will be some sort of green public transport revolution that means I never have to buy another car again.

Cost of living crisis hits pensions

We recently ran a survey that found that 22 per cent of people have either stopped or cut back on pension contributions during the cost-of-living crisis, with men and younger people most likely to do this.

It’s perfectly understandable given the enormous pressure on our finances, but if you have had to cut back, it’s vital to make sure that you restart contributions as soon as you can afford it.

Make a note in your diary to consider it every month – so you don’t forget.

If you’re struggling to restart, you can time it for the next time you get a pay rise or a new job – before you get used to the extra cash.

It’s also worth checking whether your employer operates a matching system, where they will boost their contribution to your pension if you increase yours. This can make a massive difference.