Car Finance and Car Loans
Buying a car on finance: everything you need to know
If you're thinking about buying a new car or used car, chances are you're considering some form of car finance. Rather than having to save for years to be able to afford to buy a car outright, opting for car finance enables you to enjoy a new or nearly new car with affordable monthly payments. This makes it much more achievable for most buyers, while there are also some brilliant new and used car deals out there as well.
For many people, part-exchanging or selling their car is a faff they could do without when it comes to replacing their car, but buying a car on finance also gives you a bit more flexibility as it potentially enables you to simply give back the car at the end of the agreement.
How you choose to finance a car depends on you own needs and budget, but there are three main types of car finance available to you.
Pick a PCP (Personal Contract Purchase) car finance and expect to get low monthly repayments with the option to either give the car back or make an optional final payment to buy the car outright.
Hire Purchase (or HP) is for those who want to own the car at the end of the term, but want to pay for it monthly over an agree period. Expect high monthly payments compared to a PCP deal, but you do end up paying less interest overall to own the car.
Then there's Car Leasing and it works a bit like long-term car rental. These tend to have the lowest monthly payments, but there's no option to buy the car at the end of the term - simply hand back the keys and start again.
The last few years has seen interest rates rise, so if you're looking to finance a car in 2024, you can expect to pay more than you have previously. However, if you're not too precious about the make and model of car you have, then there are some very tempting deals out there. You'll find manufacturers and dealers offering incentives such as deposit contributions, no deposit offers and in some instances, 0% APR car finance deals.
With so many variables to consider, it can get a little overwhelming. Don't worry though as we are here to guide you through everything you need to know about car finance, with a wide range of helpful guides.
Your car finance options compared
PCP Car Finance
Personal Contract Purchase, or PCP, is a way of financing a car without having to find the whole sum up front. Instead you pay a deposit and a monthly payment over an agreed term. At the end you have the option to walk away, refinance a deal on a new car or pay a balloon payment so the car is yours. Read our full guide to PCP
Hire Purchase
Hire Purchase spreads the cost of a new or used car across fixed monthly payments. Once you've made the final instalment, you own the car outright. This way, you don't have to find a large optional final payment to own the car, but it does mean monthly payments are higher than PCP. Read our full guide to HP
Car Leasing
Leasing (and you'll also find it referred to as PCH, or Personal Contract Hire), is best seen as a long-term car hire. You're likely to find low, fixed monthly payments and normally only available on new cars. At the end of the contract you return the car (and there's no option to buy the car outright). Read our full guide to leasing
Car Finance FAQs
Car finance is a means of purchasing a vehicle without having to find all the money up front. Instead you make a financial agreement with the dealership (usually via a third-party finance house) so you get the keys to the vehicle and pay a deposit followed by monthly payments depending on the type of deal.
Strictly speaking you can’t, because until you’ve made the last payment on a hire purchase deal, or the balloon payment on a PCP, you don’t actually own the car, so it’s not yours to sell. If you want to change your car, you either need to settle the outstanding finance or potentially make a new deal with a dealer, though this depends on the terms of your current finance.
Yes you can, but generally speaking you’ll need a good credit rating to get it and you may have to search around to find it. You won’t find zero per cent finance everywhere and you may find that dealers will only offer zero per cent on certain cars. The other terms of the deal may be more restricted too.
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