Car Finance & Loans Explained


There are many guides that show the differences between the car finance options, but they are sometimes overly complex and don’t relate to you or provide an easy-to-understand comparison between the car loans available.


Hire Purchase (HP) Finance

Hire Purchase – also referred to as HP – is the simplest form of car finance. You will usually pay a deposit and then the rest of the car value is spread over the term of the contract and paid off in monthly instalments with added interest. When the agreement has ended and you have made your final payment, you will then own the car.


PCP (Personal Contract Purchase) Finance

Personal Contract Purchase – also known as PCP finance – is considered the cheapest car finance option on a monthly basis. This is because up until the end of your contract, the monthly instalments will only pay off the depreciation of the car (based on its estimated value). When your contract is up you can choose to walk away, swap the car or pay the rest of the car’s value – known as the balloon payment or the Guaranteed Minimum Future Value (GMFV) – which will then give you ownership of the car.


Personal Loans for Car Purchasing

A personal loan – also known as an ‘unsecured loan’ – is the process of borrowing a sum of money from a lender to use for a personal purchase, such as for a car, paying this back monthly over an agreed time period. Unlike other car finance options, when you take out a personal loan you will be given the total amount you’re borrowing which you will use for the car purchase, giving you instant ownership of the car.

Find out more about Personal loans >