Car Finance Explained

There are plenty of Car Finance options open to you. Below we go through some of the main options, who they work best for, their typical cost and how it all works. If you have any questions don’t hesitate to fill out our enquiry form and we will get back to you as soon as possible.

Hire purchase

Best for

People who want a simple form of car finance that's easy to arrange.

Typical cost

Between 7% and 13% APR.

How it works

You pay an initial deposit of £99 or above (sometimes you don't have to pay a deposit either). Then you pay the remainder, with interest, in monthly instalments. Sometimes there is an administration fee to pay with the first payment and an 'option to purchase' fee with the final one. Hire purchase offers a higher level of consumer protection than an unsecured personal loan.

Leasing

Best for

People who want a new car regularly without the hassle of owning it.

Typical cost

Monthly payments are normally between £100 and £400 a month.

How it works

You choose your vehicle and how long you want it for, and state your annual mileage. These three factors determine your monthly payments. With some schemes, you can opt for the payments to include maintenance.

Personal contract plan

Best for

People who want to keep repayments low and like a new car every two to four years.

Typical cost

Between 7% and 14% APR.

How it works

You put down a deposit, pay monthly instalments as you go along, and leave a lump sum to pay off at the end of the contract.

The amount you defer, which is set by the finance company, is called the minimum guaranteed future value. The lender guarantees that your car will be worth that amount at the end of the contract.

When the contract ends, you have three options:

1. Pay the deferred sum and keep the car
2. Sell the car privately to fund the final payment
3. Hand the car back to the us, the dealer

If the car is worth more than predicted, you can use the difference as a deposit on a new car. PCPs offer a higher level of consumer protection than an unsecured personal loan.