The best ways to finance a car in the UK
Find out your options when it comes to landing your dream car
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Cash or credit, it’s the eternal conundrum. Using financing to fund a car purchase has overwhelmingly become the most popular option for car buyers – and there are plenty of different ways to do it.
Personal loan
If you want to buy a car and have a good credit rating, you should be able to take out a personal loan, which will allow you to spread out the payments over a number of years.
A personal loan is often the cheapest way to finance a car purchase, but you’ll have to shop around, to find the best annual percentage rate (APR) of interest.
One useful tip – when buying a car with funds from a personal loan, pay for part of it with a credit card. It doesn’t have to be much: £100 is enough. The reason for this is that the purchase is then covered by Section 75 of the Consumer Credit Act 1974, so the card company shares liability with the dealer if anything goes wrong.
Hire Purchase
Hire Purchase (HP) splits the cost of your car across monthly payments that can be more manageable than buying a car outright. You’ll start by putting down your deposit and will then commit to monthly payments until the end of your contract.
There will be a small ‘option to purchase’ fee at the end of your contract, which you’ll be made aware of before you sign the agreement. You’ll then be the full owner of your vehicle – congrats!
You can tailor your HP finance agreement to suit your needs by adjusting your deposit or the length of your contract. The larger the deposit, the smaller your monthly payments will be, while if you spread your payments over a longer term, it will also lower the amounts you’ll have to pay each month.
Personal Contract Purchase
Personal Contract Purchase (PCP) is a type of car finance that considers the depreciation of your car over the length of your contract.
At the end of your contract, you can decide whether to pay the lump sum ‘balloon payment’ and purchase the vehicle outright, or hand it back and get something new.
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Personal Contract Hire
Personal Contract Hire (PCH) is a form of leasing, where you pay a fixed monthly amount for the use of a car, as long as the mileage doesn’t exceed a specified amount.
At the end of the agreement, you hand the car back, because it never actually belongs to you.
The monthly payments for PCH deals are usually higher than those for PCPs, but the total cost can often work out cheaper.
Dealer finance
Dealers often offer their own finance packages as they try to squeeze more profit out of a sale.
You’ll need to do your research – and some maths – in order to get the best deal. Doing some homework online before walking into a showroom means that you can arm yourself with details on current, and even upcoming, deals from manufacturers, which could include features such as 0% interest and deposit contributions.
You’ll need to check the total amount you’ll have to pay back and then compare this to other deals on the market.
And don’t be afraid to haggle: dealer finance rates are often negotiable. And remember to always get a quote in writing, to ensure that the dealer sticks to it.