How to Find Cars on Finance

How to Find Cars on Finance - RateWise
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by ratewise

Owning your dream car is one of the most significant achievements in life. However, buying a car is not a simple decision. It is not only the cost of the car that you pay, but the running costs are also an essential factor to consider.

Car finance helps you to own a car giving you the flexibility to repay your loan in monthly EMIs. This payment flexibility is a profit source for the automotive business.

There are many ways to buy cars on finance. You can choose PCP finance that allows payment distribution over a long period.

When this period ends, customers can pay the balloon payment, which is a lump sum amount for purchasing the vehicle, or they can finish the deal by handing the car back. 

Hire purchase is one more option to buy cars on finance. One in every five cars is purchased through hire purchase in the UK as this type of deal includes lower interest to own a car.

Leasing is another option for you to use a car with low monthly payments. However, technically, you do not own the car. This can heart-breaking when if you love the car because later on you have to hand it back over to the dealer. There is fierce competition in car finance deals, and this results in low-interest rates.

Is it better to use cash for purchasing a car?

Advantages of buying a car using cash

Cash is a straightforward way to purchase a car. You can drive away with your new dream car by giving money to private sellers or dealers. There are no credit checks or mileage limits to make you worry.

You don’t have the burden of repaying every month to the finance company and save extra money that you would be paying as interest when buying cars on finance.

Purchasing using cash is beneficial because when you plan to change your car you get the entire sale value without any deductions for extra mileage or wear and tear.

Drawbacks of buying a car using cash

Every car model depreciates unless you buy a classic or limited-edition model. In the first three years, most cars depreciate by half of their value.

A used car depreciates slowly, and more money can be expected when selling, especially when you owned it for a minimum of five years or drove an average of 12,000 miles every year.

Buying a car using your hard-earned cash can leave you with no money during a financial emergency. Lastly, with a limited budget, you may not be able to buy a car that you fancy.

Types of auto finance available

Personal Contract Purchase (PCP)

If you are seeking to buy cars on finance, then PCP is one of the most attractive finance options. The low and flexible monthly payments with significant discounts make it a popular choice for owning your dream car.

In PCP, the monthly payments are low, but the total money you pay back over the course of a whole deal is high.

You can easily adjust the mileage limit, the agreement length, and the deposit amount. There is a no-deposit option too, but that increases your monthly payments.

Cars on finance with the PCP option allow you to get a loan for the amount between the car’s price when new and the predicated car value at the end of the agreement.

This is called an optional final payment, balloon payment, or the guaranteed minimum future value.

You get the choice of refinancing the car with some monthly payment options or make the final payment and return the car.

While returning the car, the car’s condition gets checked, and they will check if it has not gone over the pre-assigned mileage limit.

Benefits of PCP

  • Low deposit and no deposit options available
  • Lower monthly payment
  • Flexible repayment period
  • You can purchase a car at the end

Drawbacks of PCP

  • Involves extra fees in case of wear and tear on the car
  • Additional charges are levied when the mileage limit is exceeded
  • Total paid amount is usually higher than the hire purchase amount

PCP – Important Points

  • You have to pay the final amount if you want to buy the car
  • Extra mileage charges may be applicable as mileage allowance is decided when signing the contract
  • Without finance setting, you cannot sell the car
  • You can own the car only with complete repayments
  • You have to keep the car insured and maintained until it is paid in full


Leasing is a long-term rental agreement that allows you to own cars on finance for a limited time. It involves an initial deposit and monthly payments for a set amount of time.

After the end of the leasing period, you must return the car to the dealer as there is no chance to purchase it. The monthly payments for leading are higher than with PCP, but the total cost of the deal is lower as it includes maintenance and service costs. Leasing also allows you to switch providers.

Benefits of leasing

  • Payment includes maintenance & servicing costs
  • No depreciation risk
  • Fixed monthly payments
  • Flexibility in payment

 Drawbacks of leasing

  • Limited mileage
  • You have to return the car once the agreement ends
  • There is extra cost for wear and tear and additional mileage

Leasing- Important Points

  • Leasing does not allow you to buy the car
  • Extra mileage charges for additional mileage apply
  • Some fees are applicable when you need to stop or change the contract

Hire Purchase

Hire purchase agreements are another way to buy a car on finance. You must pay an initial deposit followed by monthly instalments of the car value. When the monthly payments are complete, you can own the car. A car dealer makes this purchase agreement and you can get many opportunities in case of a new car.

Benefits of hire purchase

  • Highly competitive in the market, so it is quick and easy
  • Low initial deposit
  • Fixed interest rate
  • Flexible repayment period

 Drawbacks of hire purchase

  • Can’t modify or sell the car without the final payment being done

Hire Purchase – Important Points

  • Higher monthly payment than PCP
  • Without a financial settlement, you cannot sell the car
  • You can own the car only after completing repayments
  • You have to keep the car insured and maintained till full payment is made

Personal Loan

A personal loan is a simple way to own cars on finance. Banks, finance providers or social groups offer personal loans. You are eligible for a personal loan when your credit score is good.

The loan term can extend from one year to seven years. The car you buy would be yours from the first day if you purchase it with a personal loan.

You are free to sell it anytime or modify it as you want. There is lots of competition and you can get a competitive interest rate.

Benefits of personal loans

  • While making loan repayments you can sell the car and do not need to confirm with the lender
  • May require a small initial deposit
  • Additional payments can help you pay off the loan earlier
  • No annual mileage restrictions
  • You own the car as long as you want

Drawbacks of personal loans

  • Cars on finance with a personal loan can burden you with a high monthly payment
  • Some lenders make the funds available immediately while sometimes you have to wait for loan availability

Personal Loan – Important Points

  • As you are paying the full car value, monthly payments may be a bit high
  • If you sell the car, you may have to repay the loan

Credit Card

Using a credit card for buying cars on finance sounds good. The amount is paid upfront, and you need to pay the balance back to the credit card company on a monthly basis.

The interest is levied on the outstanding amount. It is different from other loans that provide cars on finance because you do not have to pay a fixed amount every month and can choose to pay back every month, meeting the minimum monthly payments.

Many dealers accept credit cards, but some do not. However, you can be charged an additional fee of up to 3% for paying by card.

Benefits of credit cards

  • Flexible monthly repayment options
  • Extra protection through the Consumer Credit Acts
  • You may be offered some rewards points

Drawbacks of credit cards

  • Not every car dealer accepts credit cards
  • Sometimes you are not allowed to utilize the full amount on credit cards
  • Extra charges applicable on credit cards

Credit Card – Important Points

  • Paying using a credit card may cause you to get a surcharge from the dealer
  • Interest rates are high on credit cards
  • Not every person will qualify for a 0% card or a high credit limit

Social Lending

Social lending or peer-to-peer loans are an opportunity to buy cars on finance. It includes borrowing money without the involvement of banks and building societies.

All you need is a good credit score for getting the best rate of interest. If you miss a payment, then your credit rating will also be affected. Your credit score decides the interest rate.

Final words

When you are going to buy cars on finance, make sure to compare the interest rates by looking at APR (annual percentage rate). It includes various charges that you need to pay.

Ensure that you can pay the monthly instalments without missing an instalment. Ask about the consequences if you do not payback for a month and be careful when buying payment protection insurance.

Find cars on finance near you


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Categories: Car Finance
Tags: How To