Buying a Car on Finance
Car finance makes getting a new set of wheels far more achievable for most drivers. Rather than having to save up for years to get enough cash together, finance enables you to pay for your car with affordable monthly payments.
Buying a car on finance also offers greater flexibility - potentially enabling you to hand the car back without the faff of having to sell it or being able to choose to buy it at the last minute.
Opt for Hire Purchase and you should pay less interest overall to own the car. Car Leasing, meanwhile, works like long-term car rental, with low monthly payments, but no option to buy the car - even if you love it. You simply hand it back and start again.
Interest rates rose substantially in 2023, so you can expect to pay more for finance than in 2024 than in previous years. However, you can still often find incentives such as deposit contributions, no deposit offers and - for some new cars - 0% APR, also known as interest-free credit.
With so many options, things can get confusing and to get a feel for which car or deal offers you the best value, it’s always good to get like-for-like car finance quotes with the same type of finance, contract length, deposit amount and mileage allowance. Keep reading to work out the best car finance options for you.
Buying a car on finance: your options compared
If you're looking to buy a car on finance, these are the main three options you'll find available on new and many used cars. One of the key factors to bear in mind when considering car finance deals is the APR figure - which shows how much extra you have to pay in interest and other compulsory charges - along with the availability of deposit contribution discounts.
Personal Contract Purchase (PCP)
PCP is a flexible form of car finance for new and used cars with low, fixed monthly payments. When the PCP contract ends, you can return the car, buy it by making the large optional final payment or trade it in for a new car - using any value in the car over the remaining debt (known as equity) towards your next finance deal - making it easy to regularly upgrade. Read our full guide to PCP
Hire Purchase (HP)
This spreads the cost of a new or used car across fixed monthly instalments. Once all payments are made, you automatically own the car. With no large optional final payment deferring some of the cost, monthly payments are higher than with PCP, though as a result you also pay less interest overall - as you're paying off the finance balance quicker. Read our full guide to HP
Leasing (also known as PCH)
Leasing, also known as PCH (personal contract hire) is like long-term car hire with low, fixed monthly payments. This is normally only available on new cars and you have to return the car at the end of the contract with no option to buy it. Read our full guide to leasing
An alternative option is to take out a personal loan. This doesn't offer the low monthly payments of leasing or PCP but is more similar to Hire Purchase, enabling you to access a car for a series of fixed monthly payments.
If you can access lower APR figures with a loan than with Hire Purchase, and there are no deposit contribution discounts available with Hire Purchase (which you wouldn’t be able to access by taking out a loan), you’re likely to be better off choosing a loan rather than Hire Purchase.