Cars on Finance: A Beginner’s Guide to Car Finance

If you’re in the market for a car but don’t have the money to buy it outright, car finance could be the solution you’re looking for. With car finance, you can purchase your next car and spread the cost over a period of time with fixed monthly payments, making it a more affordable and manageable option. This guide will help you understand the basics of car finance, including different finance options such as personal contract hire and personal loans. 

Cars on finance in UK

We’ll also cover important factors to consider, such as your credit rating, as well as the benefits of purchasing a used car. It’s important to note that we are not a lender and recommend conducting thorough research before making any finance decisions.

Understanding Car Finance

Car finance is essentially a type of loan that you take out to purchase a car. There are different types of car finance, each with their own pros and cons. The two most common types of car finance are Hire Purchase (HP) and Personal Contract Purchase (PCP).

Hire Purchase (HP)

HP is a type of car finance where you make fixed monthly payments over an agreed period of time (usually between 12 and 60 months). Once all the payments have been made, the car is yours. With HP, you are effectively hiring the car until you make the final payment, at which point ownership is transferred to you.

Personal Contract Purchase (PCP)

PCP is a type of car finance that allows you to pay lower monthly payments by deferring a proportion of the car’s value until the end of the agreement. At the end of the agreement, you have the option to pay the final payment (also known as the balloon payment) to own the car outright, or you can return the car to the finance company.

Getting Car Finance

To get car finance, you’ll need to apply for a finance agreement with a lender. The lender will typically ask for your personal details, such as your name, address history, bank account details, and driving licence. They’ll also carry out a credit check to assess your credit score and determine whether you’re eligible for car finance.

Interest Rates and Monthly Payments

The interest rate you pay on car finance will depend on your credit score and the lender you choose. It’s important to shop around and compare finance deals to get the best interest rate. The monthly payments you make will depend on the cost of the car, the deposit you pay, and the length of the finance agreement. Make sure you have a monthly budget in mind before applying for car finance to ensure you can afford the payments.

Part Exchange

If you already have a car, you may be able to part exchange it as part of the car finance deal. This means that the value of your current car will be used as a deposit towards the new car, reducing the amount you need to borrow. Make sure you get a fair valuation of your current car before agreeing to a part exchange deal.

Optional Final Payment

If you choose a PCP finance agreement, you’ll have the option to make an optional final payment at the end of the agreement to own the car outright. This final payment is also known as the balloon payment, and it will be a significant amount of money. Make sure you have a plan in place to pay the final payment if you choose this option.

Excess Mileage Charge

If you go over the agreed mileage limit in a PCP finance agreement, you may be charged an excess mileage fee. Make sure you’re aware of the annual mileage limit before agreeing to a PCP finance agreement to avoid any unexpected fees.

Buying a Car Online

Many car finance deals can now be done online, allowing you to search for and buy a car from the comfort of your own home. This can be a convenient way to buy a car, but make sure you do your research and read all the details carefully before agreeing to a finance deal.


In conclusion, purchasing a car on finance can be a great option for those looking for a new or used vehicle but don’t have the funds available upfront. With a range of finance options available, including personal contract purchase and hire purchase, buyers can find a deal that suits their needs and budget. However, it’s important to do your research and consider all the details, such as interest rates and optional final payments, before entering into a finance agreement. With the right approach, a car on finance can be a more manageable way to pay for your next vehicle.