What are my options when financing a car?

Many people throughout the UK currently finance their car. It’s a simple way of ensuring you get a new car, and means you’re behind the wheel of something without the elevated running and maintenance costs you may associate with an older car.

However, there are several different ways to finance a car. Let’s take a look at those options and what they mean for you.

There are four main ways to finance a car, which we’ll outline below…

Personal Contract Purchase (PCP)

Jaguar in �175m Indian loan deal
New Jaguar cars await delivery near the company’s Castle Bromwich plant, Birmingham.

PCP finance lets you get your hands on a new car for an initial deposit and a series of monthly payments. You don’t own the car come the end of the agreement, though you do have the option of buying it outright in return for a final – or ‘balloon’ – payment.

The amount you pay monthly will depend on the size of your deposit, the cost of the car, the interest rate offered and how much the dealer expects to be able to sell the vehicle for at the end of the agreement.

Hire Purchase (HP)

Car Stock
General view of a sign for a Ford Approved used car at a dealership in Basingstoke

Hire Purchase finance differs somewhat to a PCP deal. After you’ve put down a deposit, a finance company will loan you the money for the rest of the car’s worth. You’ll then pay this back in monthly instalments.

In contrast to PCP, there’s no large final payment to pay because once you’ve paid off the sum of the agreement, you’ll own the car.

Leasing (Personal Contract Hire)

Car sales figures
General view of new cars lined up on the docks in Sheerness, Kent, as the February new car sales figures are released today.

Leasing a car is a little like taking out a long-term car rental. You’ll pay a sum initially, followed by monthly payments. Once the payment term is over (and you’ll agree this with the dealer), you won’t own the car, nor will you be able to purchase it via a final payment.

You’ll also have to stipulate how many miles you’ll cover, as well as the amount you’ll pay each month. When it comes to the deposit, this is more rigid than with other finance plans – it’s usually determined by adding together three, six or nine months’ worth of payments.

Bank loan

Ombudsman services
File photo dated 26/01/18 of money. A more than 40% surge in consumer complaints about fraud and scams has helped push the overall number of gripes seen by the financial ombudsman to its highest levels in five years.

The more traditional finance option, getting a regular bank loan, could make getting the keys to a brand new car a little easier compared with PCP or lease deals. It will also mean that you’ll own the car outright from the start, so you could sell it when you wanted to without having to pay charges for leaving a finance agreement.

However, the onus is on you to shop around and get the best deal – different banks will, of course, offer different rates so it’s down to the individual to investigate different options.

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