Agree on contract length and conditions
You’ll have to agree on how long you want to pay for the car. You’ll also agree to certain conditions, such as annual mileage.
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Explore different car finance options
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'Car finance' is a general term that encompasses the many options available to you if you're looking to borrow money to fund the purchase of a new or used car.
The term also covers the options on offer if you'd like to lease a car for a set period.
As the loanee, you'll be responsible for repaying the money you've borrowed in instalments. That means you can spread the cost of your car over several years.
Common methods of financing a car include leasing, personal contract purchase, hire purchase, and car loans.
You’ll have to agree on how long you want to pay for the car. You’ll also agree to certain conditions, such as annual mileage.
You’ll borrow money from the lender to cover the cost of the car. You will pay an initial deposit to begin with and then make regular payments.
Once the contract is over and depending on the type of car finance, you own the car, hand it back to the dealership or start a new car finance deal.
There are different advantages to paying for a car upfront and in or taking out finance:
Avoids interest charges (unless you get a car loan), saving money in the long run
Immediate ownership without restrictions such as annual mileage limits
Potentially a wider choice of vehicles including lower cost, second-hand runarounds
May help make expensive cars more accessible
Keep savings intact for emergencies or other investments
Flexible finance deals give you the choice to buy or lease
Borrow to purchase the car outright and then pay off the personal loan in fixed monthly repayments.
Pay a deposit and monthly payments to a finance company. You own the car after the final payment.
Pay a deposit and instalments to cover depreciation. Make a final larger payment to keep the car or return it.
Lease a brand-new car by paying regular monthly instalments and return it at the end of the contract.
When deciding on the best financing option – whether you opt for a personal loan or car finance – assess its affordability plus any terms and conditions that come with the different types of loan or contract.
Think about how much you can afford to borrow, how long you want the car for and how you intend to use it. These factors should help you decide on the best car financing option for your needs
If you’re after lower monthly repayments, you might prefer PCP. Conversely, if you want to own the car once the deal is finished, a hire purchase (HP) plan may suit you best
Another option to consider might be leasing, also known as personal contract hire
Personal loan | HP (Hire Purchase) | Personal Contract Purchase (PCP) | |
|---|---|---|---|
Deposit needed | No | Likely | Likely |
You own the car straight away | Yes | No | No |
You’ll own the car at the end of the deal | Yes | Yes | No (unless you pay off the remaining balance – but this is likely to be a large final payment) |
Secured (against the car) | No | Yes | Yes |
Excess mileage charges | No | Yes | Yes |
Monthly payments | Yes | Yes | Yes |
Available with bad credit | Yes, but expect high rates | Likely | Likely |
How much your new wheels will cost you will depend on the type of car finance you choose, how long you’ll be paying it back and any interest added.
We’ve put a table together to compare the different types of car finance (PCP, HP and taking out a personal loan) factoring in the deposit and interest rate applied or APR.
Our car finance calculator can also help you work out expected costs.
*With a perfect credit score
**Assumes 45% of car price
***Based on fixed-rate APRs
**** GMFV = Guaranteed minimum future value
Source: Motiv Finance. Accurate as of April 2024
REPRESENTATIVE EXAMPLE | HP | PCP | Personal loan |
|---|---|---|---|
Car price | £15,000 | £15,000 | £15,000 |
Deposit | £1,000 | £1,000 | £1,000 |
Total borrowing price (car price - borrowing) | £14,000 | £14,000 | £14,000 |
Representative APR* | 9.90% APR | 9.90% APR | 6.10% APR |
Monthly cost (3yr term) | £448 | £285 | £426 |
Total cost of credit *** | £2,141 | £3,073 | £1,318 |
GMFV****/final payment | £10 | £6,750** | N/A |
Motiv offer a free service that lets you compare a wide selection of car finance options.
Founded in 2018, they have helped nearly 10,000 Britons finance a vehicle purchase. Here’s some of the reasons we chose to partner with Motiv:
Options to suit you: You can pick from hire purchase, personal contract purchase, unsecured loans and leasing car finance deals
Trusted lenders: Motiv cater for customers with a broad range of credit histories, with a panel of over 30 lenders that includes household names such as The AA, Lendable and Zopa
Pre-approved loans: Lending partners can often pre-approve finance deals and guarantee a rate. So when you apply you know exactly what you’ll be paying and it won’t damage your credit score
If you’re in the market for a new set of wheels, you have various options about how to pay for it. If you want to upgrade your car regularly, a personal contract purchase (PCP) deal might be for you. Hire purchase (HP) is suitable if you have poor credit but can afford a monthly payment and want to eventually own the vehicle – but a car loan can work out cheaper if you’re eligible for a competitive interest rate.
If you think you’ve been mis sold a car finance deal, you can lodge a complaint to the Ombudsman.
Your grounds for complaint could be that you feel the terms of the contract weren’t made clear to you. Or that the lender failed to carry out the stringent affordability checks that they’re obliged to do.
At the time of writing (May 2024), the Financial Conduct Authority is investigating car finance mis selling. The investigation was launched after it emerged that millions of Britons may have been charged too much on car finance deals before January 2021.
Among the lenders under investigation are Barclays Partner Finance, Blackhorse and Santander. If you think you may have been affected, it’s a good idea to register your complaint as soon as you can so that you’ll be first in line for compensation in the event that the probe clears the way for a claim.
MoneySuperMarket has won the Feefo Platinum Trusted Service Award, an independent seal of excellence, which recognises businesses that consistently deliver a world-class customer experience.
Find the right car finance option for you and see which rates you’ll be guaranteed to get
Decide which car finance option is right for you, from PCP or HP to taking out a personal loan
Just tell us a little about you, your finances and what you’re looking for
You’ll be able to sort car finance options by overall cost and the likelihood you’ll be accepted
You generally have to be over 18 to get car finance, and lenders will often have their own specific requirements. You can find out more by looking at their website or contacting them directly, by phone, email, or post.
Car refinancing involves moving onto a new car finance deal, and using this to pay off your existing agreement, usually to benefit from lower interest rates or lower monthly payments.
To apply for a loan you’ll need your address, contact details, details about your income, expenditure and employment. You’ll also need to mention how much you want to borrow, and for how long.
This depends on the lender. Some loan providers will charge you extra fees if you start making higher repayments than have been agreed, but others may allow it. There may be an early repayment penalty charge if you want to clear the loan in full before the end of the term.
Missing repayments could have several negative effects so always speak to your lender as soon as possible if you are experiencing difficulties. The lender should be able to offer options to help you mitigate the problem. A missed debt payment could harm your credit score and result in a County Court Judgement against you. Any assets secured against the loan could eventually be repossessed. Try to avoid missing repayments as it is likely to make borrowing more difficult and more expensive in future.
When looking to finance your new car consider what is most affordable for your circumstances, not what is necessarily the cheapest. If you can’t afford to pay for your car upfront with cash (which will usually be the cheapest way to buy a car), taking out a personal loan could be a way to spread the cost of the purchase over a number of years to make it more affordable. When deciding what is the best way to finance a car, you’ll need to consider the interest and any charges added to the finance plan you take out, and the size of your monthly repayments.
It can take a few minutes to a few days to get approved for a car loan, depending on what type of lender it is, the type of loan you’ve applied for and the type of car you’re looking to buy.
Whether it’s better to choose a hire purchase or personal contract purchase (PCP) contract will depend on a range of factors, including costs and what you want out of the deal.
PCP can offer cheaper monthly payments but you won't own the car at the end of the contract term unless you can make the large final ‘balloon’ payment.
With hire purchase you know that once you’ve paid the final instalment the car is yours to keep.
It is also worth comparing any conditions, such as maximum annual mileage, which might influence your decision as to the best type of finance for you.
Yes, the car finance industry in the UK is regulated by the Financial Conduct Authority (FCA).
The FCA ensures lenders adhere to strict guidelines regarding transparency, affordability assessments, and fair treatment of customers.
Regulations aim to protect consumers from predatory lending practices and ensure clear terms and conditions.
Lenders must be authorised by the FCA to offer car finance, providing consumers with recourse in case of disputes.
If you’ve struggled to keep up with repayments in the past or you don’t have a credit history, it may still be possible to get car finance.
We work with specialists in car finance for bad credit, and we might be able to match you with a car loan that works for you.
Taking out car finance won’t lower your credit score unless you fail to keep up with your payments.
In fact, showing you can handle car finance responsibly over the long term can help make you more appealing to future lenders.
Representative 29.9% APR
Yes, as with any other road vehicle, you need to be insured to drive your financed car.
Some finance companies may make it a condition of the contract that you take out fully comprehensive insurance, and may even offer insurance as part of the overall package.
Always check your finance agreement for specific insurance requirements.
