18 Sep 2018 Three in 10 drivers have left themselves short after buying a used car outright, according to research from AA Cars, the AA’s used car website.
Of those that used their own money to pick up secondhand cars and then found themselves in hot water, 55% say they had to dip into savings put aside for something other than a car; 35% say that the purchase left them without a rainy day fund; 33% admitted that buying the car meant they had to cut back on recreational expenseslike nights out and gym memberships; while a quarter said that it meant not taking a holiday.
While only 6% of those buying outright didn’t know that you could get dedicated motor finance (such as PCPs or HP) for secondhand cars, a number of car buyers felt that using their own money had meant they’d run into issues down the line – according to the AA-Populus poll of over 10,000 drivers.
Millennials were by far more likely to express regret at buying a used car outright than other age groups, with 48% of 18-24 year olds running into trouble afterwards, 50% of 25-34 year olds and 50% of 55-64 year olds.
A number of older drivers have taken advantage of the 2015 pension freedom reforms to pay for the car, with 4% of 55-64 year olds saying they’ve dipped into their pensions to buy cars outright. Among those firmly over state pension age (65+), 6% have used their pensions to buy used cars outright.
James Fairclough, CEO of AA Cars, comments: “Buying a car, whether used or new, is a big financial commitment. Lots of drivers prefer to use their own savings to pick up their next car as they might be reluctant about having any ongoing financial repayments, paying off interest or having a commitment on their credit score – but there can be downsides to relying purely on your own cash to buy your next car.
“Buying a car outright can be a great option for many, but you should be careful not to dedicate all your savings to one single purchase and potentially leave yourself short further down the line. Unfortunately in some cases, spending your cash savings on a car might mean depleting your rainy day fund and having to seek another source of finance should you need to call on emergency rations. This can be problematic as unsecured loans from the bank can be tougher to justify than a car finance loan.
“Before taking the leap and dipping into your hard-earned savings to buy your next car, it’s worth thinking about saving up more funds or shopping around to see if there are better suited car finance deals to be had first. If you do, you can frequently get a much better deal than you would expect that spreads the cost over a long period. More and more providers, such as the AA, host a soft credit check service which won’t leave footprints on your credit record.
“That means you can glance at what you qualify for, see what your total commitment is over the course of the term and then make a call as to whether the option of using your savings is going to save you in the long term.
“Whatever finance you choose, it’s always worth getting a second opinion from someone you trust before committing to the deal.”
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