When it comes to buying a car, you’re faced with many decisions – not least of which is how to fund it.
Over the years, car finance has become an increasingly popular option with buyers. In a nutshell, car finance can help you spread the cost of a new vehicle, rather than having to pay the full amount upfront. A good alternative if, like many, you don’t have a lump sum of cash readily available.
But with so many types of car finance options out there, it can be tricky to choose the most suitable way to fund your purchase.
So, to help you navigate through the maze and make the right choice for you, we’ve cut through the jargon to look at the main types of car finance and their pros and cons.
You can read more about what car finance entails using our guide: Car Finance Explained: What Is It & How Does It Work?
If you want to own your car outright by the end of your finance agreement, hire purchase (HP) is one option that is worth considering.
With a hire purchase agreement, you typically put down an initial deposit – usually around 10% -(although you don’t have to) followed by monthly payments over a fixed period. Once you have finished making the payments, you become the legal owner of the car.
If you put down a larger initial deposit, you’ll have lower monthly payments and vice-versa. Interest is added to the loan; however, much like a standard loan, it’s often possible to pay it off earlier depending on your agreement’s terms and conditions.
If you’re thinking of buying a car with a hire purchase agreement, it’s a good idea to weigh up the pros and cons first.
PCP has become an increasingly popular choice for car finance over the years with flexible options available when your term comes to an end.
PCP works a little bit like a hire purchase agreement, but there are some key differences when the term ends.
You still pay a deposit on the car you want and there are still monthly repayments until the end of the agreement. However, when the contract ends, you have some choices as to what you can do. You can either return the car, make a lump sum payment to purchase the car in full, or part exchange it.
It’s a slightly more complicated car finance option, so let’s look at the pros and cons.
Personal Contract Hire is a common way of leasing without worry and if you enjoy having a new car every few years.
Personal contract hire works similarly to PCP, but with one major difference. With PCH you make an initial deposit followed by monthly payments for a fixed term, but at the end of the agreement, there’s no option to purchase – you simply hand the car back.
If you’re looking for more flexibility and have no plans to buy the car at the end of a PCP, personal contract hire could be the right option for you.
|Deposit required||Fixed monthly payments||Own car outright||Secured against car?||Mileage limit||Risk of depreciation||Early settlement option||Fines for damage|
|Personal Contract Purchase||Yes (lower)||Yes||Optional||Yes||Yes||No||Yes||Yes|
|Personal Contract Hire||Yes (lower)||Yes||No||Yes||Yes||No||No||Yes|
Different types of car financing will suit different needs and circumstances. Whether you want the flexibility to change the car you drive more frequently or are simply looking for the most cost-effective route to car ownership, each option has its own pros and cons.
When it comes to choosing the right one for you, it’s important to take your time and understand all your options.
It’s easy to find out if you’ll get approved for car finance. By clicking Apply Now below, you’ll find out in minutes if you’ve been accepted without affecting your credit score.
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We expect more than 51% of our customers to achieve this rate.
|Loan Amount||Total Cost of Credit||Representative APR||60 Monthly Payments||Deposit Amount||Loan Term||Total Amount Payable|
|£7,500||£3831||19.1% APR||£188.85||£0||60 Months||£11,331|
All offers are subject to change at any time, you must be 18 or over and finance is subject to status, vehicle availability and terms and conditions apply. We can introduce you to a limited number of finance companies, a commission may be received. Failure to maintain payments may result in termination of your agreement and the vehicle being returned, this could affect your credit rating and make it more difficult to obtain credit in the future. All prices correct at time of publication.
We purchase a wide variety of vehicles from all over the country to ensure the best quality and value for our customers, all of our cars go through a thorough inspection process and if they do not meet our standards we do not sell them. We endeavour to inform our customers (where possible) the provenance of the vehicle they are buying and as such we will always inform you if the vehicle has previously been either an ex fleet or hire car. Should your vehicle be an ex hire/fleet car please do not be concerned as we would never value this vehicle differently when you come to part exchange it and there is no difference to the CAP valuation either.
You should try and estimate the distance you will travel as accurately as possible to try and avoid excess mileage charges at the end of your contract.
All pictures and/or photos and car descriptions on this site are for illustration and reference purposes only and are not necessarily the vehicle on offer. All offers are subject to change at any time and are subject to finance approval and vehicle availability. All prices correct at time of publication. E & OE.
Hippo Vehicle Solutions t/a ‘Hippo Motor Finance’ is authorised and regulated by the Financial Conduct Authority. FRN 658076. We are a Credit Broker not a Lender and can introduce you to a limited number of lenders. We typically receive a fixed commission calculated by reference to the vehicle model, product or amount you borrow, for introducing you to a lender but this does not affect the interest charged on the agreement, all of which are set by the lender. All offers are subject to change at any time and are subject to finance approval.
We endeavour to ensure that all information including the specifications and finance availability are accurate. Whilst we make every effort to display correct information we are aware that errors may occur occasionally. We are not able, therefore, to guarantee the accuracy of all information especially when given to us by third parties. If you do require clarification of some information you have seen on our website, please email us at email@example.com . This does not affect your statutory rights.
We are a broker not a lender and our registered office is Unit 26 Trident Park, Trident Way, Blackburn, BB13NU.