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What are the different types of car finance?

Quick Car Finance offers 48 different tiers of car finance, with lots of options to suit every driver. You may prefer to pay zero deposit, own the car outright or give back the vehicle at the end of the term – there is something for everyone.

What are the different types of car finance?

Quick Car Finance offers 48 different tiers of car finance, with lots of options to suit every driver. You may prefer to pay zero deposit, own the car outright or give back the vehicle at the end of the term – there is something for everyone.

In this guide, we explain the main types of car finance including:

  • Personal Contact Purchase (PCP)
  • Hire Purchase (HP)
  • Personal Loans
  • Credit Cards
  • Personal Contract Hire (PCH)

 

Personal Contract Purchase (PCP)

Personal Contract Purchase (PCP) is the most common form of car finance and is used by 90% of motorists in the UK. This involves:

  • 3 or 4-year term
  • Paying a deposit (minimum 10%)
  • Monthly fees
  • A large balloon payment to own vehicle outright or give the vehicle back

For those looking to purchase a new car, PCP is usually one of the most affordable and fastest ways to do so. If you like to change your model every couple of years, you can simply hand back the vehicle at the end of the term and purchase a new one.

Or if you have fallen in love with the car, you can make a balloon payment at the end and own it outright – although this large payment may be quite high compared to using other forms of finance.

Hire Purchase (HP)

Hire Purchase (HP) is less common and involves paying a higher monthly fee, but you will eventually own your vehicle outright.

  • 1 to 5-year term
  • Paying a deposit (minimum 10%)
  • Higher monthly fees
  • You will own the vehicle outright at the end of the term

Hire Purchase is one of the preferred methods of buying a car through Quick Car Finance, since every monthly payment you make is helping you pay off the value of the car and getting one step closer to owning it.

For large families or business purposes, you may not want to give back your car at the end of the term and prefer to own it outright – and this is what Hire Purchase is designed for.

Personal Loans

Not all types of car finance are secured against the vehicle, you can apply for an unsecured personal loan and once approved, the money is transferred to the car dealer.

The best rates are available to those with good credit scores and you can pay rates from just 3.3% per year if you are borrowing above £5,000.

If you are looking to borrow £1,000 to £5,000, the rates start from 12% APR, hence the process favours those looking to borrow larger amounts.

Credit Cards

You can use a credit card to buy a car outright and this is best utilised if you have a 0% interest credit card and can also make the most of air miles and other bonuses.

You will typically need a high credit limit to be able to buy an entire car on your credit card, although you can split this amongst multiple cards and use savings to top it up.

The only challenge is that most dealers do not provide this option and they will typically offer general car finance deals instead.

Personal Contract Hire (PCH)

Personal Contract Hire (PCH) or leasing, as it is also known, is one of the cheapest ways to buy a vehicle, but there is no option to own the vehicle at the end of the term.

  • 2 to 5-year term
  • Initial deposit (minimum of 10%)
  • Monthly payments
  • Give back the vehicle at the end of the term

Personal Contract Hire is very popular for those looking to buy a car cheaply, with no intention to own the vehicle outright at the end. Once the term ends, you simply give back the vehicle and the process is practically like renting the car.

You will typically need to pay the first three months’ upfront and there may be restrictions on the number of miles you can do.

How Can I Get the Best Deal?

  • Shop around for different finance options
  • Use budget calculators (try this one)
  • Look for add-ons from the dealer such as deposit contributions, maintenance and service packages
  • Can you part-exchange your existing vehicle?
  • Boost your credit score to access the lowest rates
  • Haggle with dealer as much as possible

How Can I Get a Car with No Deposit?

Yes, it is possible to get a car with no deposit and this may involve:

  • Part-exchanging your existing vehicle
  • Committing to higher monthly payments
  • Using payment contributions from the dealer
  • Helping the dealer when they have targets to meet

 

Which type of car finance is right for me?

With so many different options available, it can be hard to find the right type of car finance for you.

You should start by thinking how much you can afford to pay and you can use our car finance calculator to set your monthly budget accordingly.

In addition, think how long you may want the car for such as 1 year, 2 years or whether you want to keep the vehicle forever.

At different times of your life, you may have different requirements, such as leasing a car during your 20s because you want to stay up-to-date with the latest model. Or maybe you prefer to own more of the vehicle if you have a family car in your 30s or 40s.

Or if you have a good or bad credit score, you can look at all of these options and see which works out the most cost-effective.

At Quick Car Finance, we can provide a list of instant quotes, with no fees and no impact to your credit score. If you have a particular car in mind, you can start your search with us today!