With more young drivers passing their exams and joining the roads, they all face one hurdl: getting a car. Now there are many options; borrowing your parent’s car, buying a used car online or, financing.
Many young drivers feel the pressure to buy something ‘cool’ and ‘flashy’ to show off for their first car. Usual culprits being BMW’s, Mercedes’ and even Tesla’s.
So now what if you don’t have £40,000 to buy a new Golf GTI? Well you can go online and finance one – and it’s never been easier.
And this is where the trap is set for many, including KU engineering student Krishna: “You see all these people parked outside the university with their nice cars and it makes you envious.”
When it comes to buying a first car, 14% of those under-25 use financing as a method, paying an average of £230 a month, with 14% of those paying over £400.
“I saw this BMW 3 Series, I liked and imagined myself inside it. I wondered about it for about a week before I made my final decision,” said Krishna. “It didn’t take too long to run credit checks, and before I knew it, I found myself in a dealership signing papers.”
To many young drivers, their car is a symbol of their independence, their way of navigating the world but when financing, many forget other costs such as maintenance, insurance, fuel, road tax, and more.
Most drivers use the financing method of Personal Contract Purchase (PCP) which is broken down into three parts: A deposit, monthly payments, and finally, a balloon payment.
The deposit is the initial starting payment, and is dependent on the car worth, but like in Krishna’s case, sometimes you don’t even need to put money down, something which can be very appealing to new drivers.
Then follows the monthly payments, where one needs to make reoccurring payments and this can last over the period of 12 – 48 months. Payments will need to be made to prevent late fees, potential credit issues and in worst case scenario, repossession.
Finally, in a PCP plan, there is the ‘Balloon Payment’. This differs from a ‘hire purchase’ plan where the lender would keep paying until the car is completely in their ownership, but results in higher monthly payments. This is calculated by the value of the car considering deprecation and mileage which can be expensive, as it is a lump sum.
Krishna admitted to paying £430 over 48 months – a staggering £20,640: “I got caught out by the payments, but I thought since I was working part-time, it shouldn’t impact me too much,”
Krishna said he didn’t fully regret his decision, but he would go with buying used.
