Everything You Need To Know About Car Finance

A young couple are shown holding the keys to their new car

Trying to find the right car that suits you are your family’s needs can be tough. One of the hardest decisions that you will have to make, besides what car you are going to purchase, is how to pay for it. The amount of people choosing to buy their cars through finance is on the rise as people are struggling to pay for a car outright and it might be the best way for you to buy your new car too. In this article we look at:

  • Making a personal contract purchase
  • Considering a hire purchase
  • Is personal leasing worth it?
  • Deciding on the right car finance for you

The most popular method of car finance is a personal contract purchase (PCP), but there are other ways that you can purchase a car through car finance such as hire purchase (HP) and leasing, which are growing more and more popular by the day. If you are considering purchasing your car through finance but want to learn a bit more about the types of car finance options are available to you, read on.

Personal contract purchase

The personal contract purchase route of car finance is one of the most popular types of car finance available, with over 75% of UK new car sales finance with this type of finance according to car finance experts. All personal contract purchase options are extremely similar, most contracts will ask you to pay a deposit at the start and then pay a fixed monthly payment until the end of your contract. At the end of this, you can then decide whether to either pay a lump sum in order to own the car, return the car or sell it privately to pay off the remainder.

Over 75% of UK new car sales finance is done with personal contract purchase

You should keep in mind that it is important to stick to the agreed mileage limit and to keep the car in good condition to avoid penalties. You are hiring the car until you make the balloon payment (if you decide to). It can, therefore, be less cost-effective than a hire purchase if you want to keep the car, in this case.

Hire purchase

A hire purchase car finance route is similar to a personal contract purchase in terms of the fact that you will pay a deposit on the car, but you will then spread the cost of the entire car throughout the monthly payments made. You will then own the car at the end of the contract without having to make a balloon payment. You will not own the car before the payments are finished, which means you cannot sell it without the lenders permission, but you can return it if you wish.

A woman is depicted purchasing a car at a dealership

It is important to remember that your car can be repossessed if you miss a payment on a hire purchase agreement. It can prove more expensive than an independent bank loan. Servicing may be included, but check all terms and conditions.

Personal leasing

Leasing a car is a lot similar to hiring a car to travel about when you go on holiday. You will pay a small lump sum upfront and will then make regular monthly payments and will then hand the car back at the end of the contract. Although, instead of handing it back after a few weeks, your lease agreement allows you to be able to drive a brand new car for a few years. In simple terms, it is a long term car rental. You will not be able to own the car at the end of the agreement, nor will you have the option to.

You will not be able to own the car at the end of a personal leasing agreement, nor will you have the option to.

You need to make sure that you know that you have to sign a contract that means you will only have a certain number of miles you can cover a month. Similar to other financing options, you’ll have to pay an initial rental but, unlike personal contract purchase or hire purchase agreements, this tends to be less flexible and is usually calculated as a multiple of three, six or nine monthly payments.

The right car finance for you

You need to think long and hard about what type of car finance will suit your individual circumstances and budget before you decide to sign any contract. Any kind of car finance will be a big outgoing and a brand new car will depreciate considerably, so factor that into your decision-making and make sure you make the right choice.

About the author

Megan Walsh

Megan, a former employee of over 20 years in the insurance industry, is devoted to sharing her valuable insights on

Apart from her interest in insurance, Megan also enjoys painting, gardening and keeping up with current affairs.

Jump To A Category

Quick Read: Money Magazine