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A Guide to Financing Your Next Car

Personal_Finance / Motoring Oct 14, 2019 - 04:18 PM GMT

By: Boris_Dzhingarov


When it comes to investing in a new car, using cash to buy it outright will always be the most affordable option. Any other method of financing subjects you to interest and other potential expenses. However, putting down a large chunk of cash on a depreciating asset is a luxury that few can afford in today’s economy.

This is why a growing number of Brits are opting to finance their cars. The Finance and Leasing Association reported that a record 960,000 private buyers financed their new cars in 2018, while 7% more used cars were financed. Let’s take a look at the most popular financing methods to help you decide how to pay for your next car.

Hire Purchase (HP)

Hire purchase involves securing a loan against the car, with a deposit of around 10% before making fixed monthly payments for an agreed time period. Only when the last payment is made does the car become yours.

Repayment terms are usually flexible, ranging between 12 and 60 months. HP deals are quick and easy to arrange with competitive interest rates. However, short-term agreements tend to be more expensive.

Personal Contract Purchase (PCP)

PCP is similar to hire purchase but often allows you to benefit from lower monthly payments. The loan you receive is based on the difference between the brand new price and predicted value of the car at the end of the agreement. Your forecasted annual mileage over the agreement term is used to determine the cost.

Come the end of the term, you can choose to either trade-in the car, hand it back to the dealer or pay a balloon payment to keep it. The balloon payment is often a large amount that ultimately makes PCP a more expensive financing method. If your car has excessive wear and tear at the end of the term, you may have to pay additional fees.

Personal Loan

Provided you have a sufficient credit rating, you can get a personal loan from a building society, finance provider or bank and spread the cost between one and seven years. While often more affordable, you might have to wait some time for the funds to be paid into your account. Be sure to shop around for a competitive interest rate if you choose this option.


Also known as personal contract hire (PCH), leasing involves paying a fixed monthly rate to use the car for a specific amount of time, usually between 12 and 36 months. Servicing and maintenance costs are included in the monthly payment, provided you don’t exceed the specified mileage limit.

You’ll hand the car back at the end of the agreement, making it a more flexible option that saves you from dealing with depreciation. Take a look at Vantage Leasing who are Manchester car leasing specialists to get an idea of how much leasing will cost you. They often have reduced prices on a wide range of vehicles and competitive rates with no upfront costs or processing fees.

Leasing is ultimately the best option if you’re looking for an affordable way to finance a car. At the end of the term, you can simply lease another model, which is great if you enjoy experiencing different cars.

By Boris Dzhingarov

© 2019 Copyright Boris Dzhingarov - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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