What is the Best Car Finance Type?

PCP, HP, and Personal loan are the three most popular forms of car finance.

We know that car finance can be overcomplicated, and finding the best type to suit your needs and budget isn't as straightforward as it should be.

Our aim at Car Credible is to make car finance as simple as possible, so everyone that has - or wants to get - finance, knows exactly what to look for so they get the best deal available.

There are plenty of different options available to finance a car and it's therefore important that you know exactly what you're getting into before agreeing to the term.

Do you have a car on finance but aren't sure if your deal is a good one? Sign up to Car Credible today for your free deal appraisal.

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Most deals will ask you to put down a deposit of some sort, though, then you can agree on the fixed monthly repayments you wish to make over a period of time, typically 24-60 months.

Whichever type of agreement you go with will depend on your ownership of the car both now and in the end. Let's look at the various options available to you.

Personal Contract Purchase (PCP) finance

Personal Contract Purchase (PCP) is the most popular way to take out a car finance agreement in the UK. 

It is ideal for those that want to change their car regularly and make lower monthly repayments. 

It’s a variation of a Hire Purchase (HP) but instead of repaying the entire cost of the vehicle, you only pay for the depreciation of the car. 

At the end of the agreement, you can choose to make the optional final payment (balloon payment) to own the car outright or hand the car back to the finance company with no further liability, provided you have taken care of the car and have not exceeded the mileage allowance.

Hire Purchase (HP)

HP is another of the more popular and straightforward finance agreements.
You don’t own the car until you have paid all sums due in terms of the hire purchase agreement. You are essentially paying in agreed monthly instalments until you have paid the entirety of the total price. 

The interest rate is generally fixed and you'll typically pay less of it over time because you are paying the total of the car off faster than you would in a PCP.


Personal loan

A personal loan is another increasingly popular way to finance a car. Rather than making repayments to a finance company that owns the car until you've made your payments, you take out a loan from a bank and own the car outright from the start.

You then make your monthly repayments to your lender with interest across a period of time that suits you, as you would on a PCP or HP, but you already own the car. 

The interest rate you get offered will be dependent on your credit score and history, the length of time you want to make the repayments, and the lender you opt to go with.

This type of finance is great for someone that is happy to keep the same car for a longer period of time.

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Car finance advantages

  • You can get a better, more expensive car as you're not having to pay for it outright with cash.
  • The cost is spread out so you can buy that £20,000 car you've been eyeing for months over the course of several years rather than in one go.
  • The payments are fixed on a monthly basis, so you can plan and budget in advance, knowing exactly what you can expect to pay.
  • You can be driving a car on a tight budget; if you know exactly what you can afford, you can make it work easily so you don't feel like you're out of pocket at any time.
  • It will also improve your credit score providing you are able to make the payments each month without any issues. This can in turn help you out when applying for further loans, including a mortgage.
  • There's no hassle of selling it on as you simply hand it back to the finance company at the end of your agreement on a PCP or PCH. If you are on an HP you would have already made the decision that you wanted to own the car outright at the end of the deal.
  • When you do wish to get a new car, you can use your current car as a deposit or part exchange, meaning you won't have to pay any of your own cash out of pocket.


Can I sell my car with outstanding finance?

If you are on a PCP or HP, you will not be able to sell your car privately until you have paid off your finance and own the car outright. You can do this by either waiting until you get to the end of your contract, or settling your loan early.

What is voluntary termination?

Voluntary termination is the process of getting out of your car finance deal early after paying off over 50% of the amount owed on the vehicle.