Car finance is one of those things that sounds too good to be true. Having the luxury of a brand-new fancy car without forking out £40,000, sounds great! But there’s so much more to it. In this article, we’re going to be lifting the lid to the ugly side of car finance. Some of you might already know our opinions on car finance at Financielle, if you haven’t already, check out our TikTok that caused a little bit of a stir. Let’s get into it. 

What actually is car finance?

Many people don’t actually know the ins and outs of car finance, or even what it is for that matter. So, one of the most popular forms of car finance is a Personal Contract Purchase (PCP), this is where the monthly payments you make cover the estimated depreciation of the car, not the total cost of the car. In other words, the exact opposite of an investment, no matter how much you tell yourself it is. Hire Purchase (HP) is another form of car finance, this involves higher monthly payments which pay off the value of the car meaning you don’t own the vehicle until the last payment and option to purchase fee is paid. You will more than likely pay a lot more for the car than buying it outright using this method and again, the car will go down in value whilst you make the same monthly payments for however many years. 

Stop keeping up with the Joneses 

The whole point of keeping up with the Joneses means investing in depreciating assets. Once you get out of this cycle of trying to impress others and trying to be perceived in a certain way, that’s when you become truly happy. The key to getting out of this cycle is to not let a fancy car define you. The truth is most people care about what they themselves look like, not how others look. Living a more basic life and avoiding the Joneses will result in more contentment, more self-control, more freedom and fewer monthly payments!

Where to invest your money instead

Did you know that as soon as you drive a new car out of the garage it starts to depreciate? And by the end of the first year, it will have lost around 40% of its value. Learning the best places to keep and invest your money is one of the best things you can do for your financial wellbeing. By investing in assets that could go up in value like in the stock market or property, you are setting your future self up rather than succumbing to the instant gratification of having a fancy car but paying it off for the next five years. 

If you were to work your way up the car ladder, buying used cars and upgrading using savings, you could invest the amount of money you would be paying monthly for car finance into a stocks and shares ISA. As time goes on, you could have more than enough in investments to buy the car you want outright and maybe some extra! 

The many lockdowns the UK has faced in the past year has taught us the importance of our basic needs. Were you paying monthly for a brand-new Range Rover that spent most of the year on your drive? This might have made you reconsider your choice of financing a car. There are much better ways to make use of your money than paying for a car that you can’t afford. You can also use that money and invest it in your future self through gym memberships, healthy food, self-development and educational courses. These types of investments add value to your life rather than leaving you in debt. 

Let’s Summarise

Car finance can be a vicious cycle. We’re not saying you shouldn’t have a nice new car; we’re suggesting you save up for the car you want by budgeting and saving. Delayed gratification is one of the most rewarding feelings and it means you’re not biting off more than you can chew!