The Pros and Cons of Car Finance 


Car finance sounds simple, right? Just like a mobile phone contract you pay a monthly fee and get the latest handset or, in this case, car.

However, there is a little more to car finance than meets the eye. There are actually a variety of different car finance options available and we are going to talk you through the three most common to ensure you are armed with the knowledge to make the best decisions for your personal finances.

Hire Purchase Car Finance

Buying a car via hire purchase is a popular choice as the deposit is often low or isn’t required at all. HP is a secured loan and if you don’t keep up with the monthly payments you can risk having your car taken away. Whilst this may seem daunting; keep up with the payments and you will be fine! Once the payment period is over and you have settled your final instalment the car is yours outright.

HP is a popular choice for new drivers for first car finance. Due to the low or non-existent initial deposit and clear payment structure, it makes securing a quality and safe car achievable for new drivers. As the car is not yours until the final payment has been made you would be unable to sell it. Furthermore, if at any point the vehicle was written off you would still be held accountable for any outstanding finance.

However, HP is also a great option if you are ineligible for decent rates on our second finance option for discussion, the personal loan.

Personal Contract Purchase

A popular way of financing a car, PCP is essentially a loan to help you pay for a new car. However, because PCP offers greater flexibility than a standard personal loan, you don’t have to pay off the full value of your car unless you decide to.

Signing contract

You have three options to conclude your PCP loan:

  • Return the car to end the agreement
  • Use the resale value of the car to secure another vehicle
  • Pay a final sum to secure the car as your own

If you have the finances and want to own the car outright before your plan is up, most finance companies will allow you to do so. This is also a great way to reduce the interest you are paying on the loan.

Many people opt for PCP when buying a new car because you don’t have to offer any collateral against the money being lent. This means less risk to you. Furthermore, PCP loans typically have lower monthly payments compared to other financing options. However, be aware that if you go over the agreed mileage cap that may be included in some contracts you will be expected to pay for every extra mile driven.

Personal Contract Hire

If you want a car for a set period of time and do not wish to own it outright PCH may be a finance option to consider. Think of PCH as a long-term rental agreement, usually 2 to 5 years. Once the agreed period is up, you simply return the car. Many people champion PCH agreements as a hassle-free way to access a vehicle without having to re-sell or pay out a lump sum to own the car when the contract ends.

A perk of PCH is that most leasing companies offer maintenance as part of the arrangement, meaning you won’t have any unexpected repair bills to pay. Furthermore, with monthly payments on PCH lower than other types of finance, you can often afford a car that you otherwise wouldn’t be able to finance.

There are a couple of things to keep in mind if you are considering securing a vehicle with PCH. However long you signed the contract for you are legally tied in, or you may have to pay a fee to cancel early and return the car. Also, if the hire comes with a mileage cap, be expected to pay for every mile over this figure.


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