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Car finance options

Car finance options

Saffron Wilson

Saffron Wilson

  • 27 May, 2019
  • 5 min read

In a forest of finance options, mega deals and valuation promises, how can you decide which is the best way to buy your car?

Instead of bouncing from “the best” advice to numerous recommendations, why not clarify what options you actually have first?

Here are the 4 main ways of funding your brand new motor – have a look and decide which way is best for you.

Finance options

One of the most common ways of funding a new car is to take out a finance agreement – and you can take one out in the CarShop showroom if you fancy! So, what are the different finance options?

PCP: Personal contract purchase

PCP finance is a form of Hire Purchase (explained later). PCP is the UK’s most popular way to finance your car, and we offer PCP right here at CarShop.

How it works

PCP is a form of finance where you pay a smaller amount each month towards your new motor for a contracted amount of time. When you get to the end of your contract, you’ll be faced with a lump sum in order to pay off the car in full and make it yours.

Just so you know, this lump sum at the end of the agreement can be referred to as a “balloon payment” or “minimum guaranteed future value.”

When you get to this point, you have 3 options:

  • Hand back the car, not pay the balloon payment and just walk away!
  • Use the difference between the balloon payment and true market value as a deposit for a new car
  • Pay the lump sum and own the car!


  • PCP may be cheaper per month than HP when you’re looking at the same car
  • Many people want to change their car at the end of a PCP agreement anyway
  • You have options at the end of your contract

Things to consider

  • You can choose to pay a lump sum at the end of the agreement
  • There is interest to pay which you wouldn’t have as a cash-buyer
  • You may need a deposit for the car at the start of the deal
  • You won’t officially own the vehicle until you pay the final balance
  • You will have to agree on mileage limits, after all, the more miles you do, the less the car is worth at the end of your contract
  • If you exceed the mileage agreed at the start of the contract and intend to return the vehicle, you’ll be paying for excess mileage charges

HP: Hire purchase

No, we’re not talking about the sauce. HP is another way of financing a new vehicle. There are a few differences between this form of finance and PCP, so keep on reading to get a better idea of which will work better for your lifestyle.

How it works

Like PCP, you’ll be paying money each month towards your new motor for a contracted amount of time. Whilst you are paying this, technically, the company still own your car, you are just “hiring” it. But, don’t let that put you off. At the end of the contract, you will own the vehicle, rather than needing to fork out for a balloon payment if you had a PCP agreement.


  • You could get accepted for a HP deal even if you have been turned down for a personal loan – this is because it is secured against your new vehicle
  • You’ll be paying standard monthly payments without a paying out a lump sum at the end of your contract
  • You’ll be paying standard monthly payments rather than a massive payout


  • You will be paying interest
  • You won’t officially own the vehicle until the final payment
  • There is no option to hand the vehicle back at the end of the deal

Which finance suits you?

HP is ideal if you want to own the car at the end of your contract and cannot pay in full immediately, whereas PCP is the best option if you’re likely to be looking for an upgrade at the end of your contract.

Other ways of funding your car

Personal loan

This one is on you! Some people go to their bank and take out a personal loan to buy a new car.

How it works

You can apply for a loan through your bank and then will have the cash for a new vehicle in your account. You’ll be seen as a “cash buyer” on the forecourt as the money will be in your account to pay for the car in full straight away.


  • You can choose how much you pay back to the bank each month – and therefore how long the loan repayments take!
  • You can see how much is left on your loan just by accessing your bank account


  • You may not get the money through immediately
  • You will still be paying back a monthly amount
  • You will be paying interest to the bank

Own funds

Have you been saving your pennies and have the money in your account? Great!

How it works

If you have been saving up for your new car, you may be called a “cash buyer”. All this means is that you’re not looking for finance and can settle the bill there and then.


  • You won’t have a payment every month, so the only pennies that will come out of your account will be your insurance and tax!
  • You needn’t worry about any lengthy contracts; the car is yours right away
  • You can part exchange your vehicle when you upgrade


  • A lot of people won’t be able to save the full amount that they will need to pay for a vehicle in full
  • You can’t just upgrade your vehicle like you would be able to with a PCP package, you would need to save up for a new car
  • You may have to sell your vehicle before purchasing your next one to get the funds

VAP Insurance

This is just a little something to think about if you’re buying a new car. (And just so you know, some other places may call this GAP insurance.)

Let’s say the worst happens – you write off your car or it’s stolen - your car insurance is likely to only cover you for the market value of the vehicle. That means that you may not be covered for the amount that you’re still paying for the car as it’s a little older and has a few more miles on the clock.  But, with VAP insurance, you can rest easy you’ll get back the cash you’ve invested, and we offer that here at CarShop!