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Car finance

Compare car finance and find a loan, hire purchase or PCP today with Runpath Regulated Services[1]

Car finance explained

There are lots of ways to finance a new car.

Although there are differences between them, most deals will ask you to make an initial deposit, then set monthly payments over the time period you agree. 

Whatever deal you choose, it’ll help you spread the cost of buying a car, although you’ll have to factor interest rates and fees into the total cost.

When you compare car finance with us, you’ll see all the options available to you – not just unsecured personal loans and secured car loans.

You’ll be able to compare loans against Personal Contract Purchase (PCP) and Personal Contract Hire (PCH) as well, to really help you find the right finance for your next car.

You need to know the difference between these products – you’ll own the car from the outset of the agreement with some types of finance, but with others you won’t until the end. And, in some cases, you will never actually own the vehicle.

With some deals you effectively only hire the car and will have to hand it back once the agreement ends, while with others you’ll need to make a larger final payment to take ownership.

Types of car finance

Think about which features are important to you and choose the right type of finance.

Personal loan

You can take out a personal loan with a car dealer, bank, building society or perhaps even a peer-to-peer lender.

Personal loans are pretty straightforward. You borrow for a set number of months, or years, and repay a fixed amount each month. Your repayments include the interest you’ll have to pay for borrowing. This type of loan is usually ‘unsecured’ – so the debt isn’t secured against your home or car, for example. 

As with all borrowing, you’ll want to keep repayments affordable and be comfortable with the terms and conditions before committing.

Pros

  • Flexibility - You can choose the loan period and borrow money to cover the whole cost of the car if you don’t have a deposit. But, the longer the term of the loan the more interest you’ll pay
  • Ownership - You own the car outright, giving you the freedom to do as many miles as you need, make modifications, and sell the car on if you want to
  • Bargaining power - Having the money upfront gives you more power to haggle on price

Cons

  • Credit history - How much you can borrow, and the interest rate on your loan, depends on how good your credit score is. If you’ve got a poor credit history, you might find it harder to borrow and the interest rates you get offered will be higher. Use our smart search tool to see which loans you're more likely to be accepted for. It won’t leave a mark on your credit history
  • Failing to make repayments - The lender can recover their money through the courts if you don’t keep up with repayments, which will affect your credit history
  • Depreciation - You’re borrowing money to purchase a car and cars lose value quickly – it could easily drop in value by 50-60% within three years

Personal Contract Purchase (PCP)

With PCP, a finance company buys the car. You pay them a deposit and fixed monthly instalments for a set time period, usually between one and four years – you don’t own the car.

Before the contract starts, the finance company gives the car a guaranteed final value (GFV) – sometimes called a ‘balloon payment’ - which you can pay at the end of your contract term to take full ownership of the car.

You don’t have to buy it at the end of the term. You can give the car back, or part-exchange it for another, instead.

Pros

  • Lower payments  You might end up paying less than other types of car finance, though this depends on the market
  • Options  You have the opportunity to drive a new car every few years or choose to own the car outright at the end of the term
  • Spread the cost  You can refinance the balloon payment to make it easier to pay off
  • Paid deposit  Some car dealers are keen to make a sale, so might offer to pay all of the deposit, meaning you’d just have to pay the monthly payments

Cons

  • Know your limits – PCP contracts usually have a mileage limit and penalties apply if you exceed it 
  • Depreciation  By the time the term ends, you might’ve only paid off the car’s depreciation, so you may not have any equity in the car and might have to start from scratch on your next contract
  • Fees  There may be fees charged for any damage to the car

Hire purchase

With hire purchase, a finance company buys the car, and you pay them back for it. At the end of the hire purchase agreement, you own the car outright.

You’ll have to pay a deposit, usually around 5-10% of the asking price, and then pay fixed monthly instalments over an agreed term. The repayments cover the purchase price of the vehicle (minus the deposit), plus interest.

Pros

  • Car ownership  At the end of the term, upon making the final payment, the vehicle is yours to keep
  • Paid deposit  Some dealers will be eager to make a sale, so they’ll contribute to the deposit, or pay it for you 
  • Borrow more  Provided you meet the criteria, you may be able to borrow a larger sum of money than under a personal loan. However, it's important to make sure you can make your repayments
  • Bad credit  You’re more likely to be accepted for a hire purchase loan than a standard personal loan if you have a poor credit history. That’s because the loan is secured against the car – if you don’t keep up with repayments, they’ll take the car back. If that happens, it’ll do serious damage to your credit score though, so keep repayments affordable

Cons

  • Collateral  The finance company ‘buys’ the car meaning that you do not own the car until the loan plus interest has been repaid. If you fail to keep up with the payments, the lender can repossess the car
  • No sale  You are unable to sell the car until you’ve paid off the loan, but you can request an early settlement figure if you want to pay it off sooner
  • Higher payments   Monthly payments are usually higher than for PCP and leasing deals


Personal loan PCP PCH Hire purchase
Deposit and/or part exchange needed No Usually Usually Usually
Monthly payments Yes Yes Yes Yes
Balloon payment at the end No Yes Not applicable No
Excess mileage charges No Yes Yes No
Secured (against the car) No Yes Yes Yes
You own the car from the start Yes No You never own the car No
You own the car at the end Yes No - unless you pay the balloon payment No Yes

What’s the best car finance option?

It’s not so much a question of ‘best’, it’s more which is right for you.

If lower monthly payments are your priority, you might be drawn to PCP or contract hire.

On the other hand, you might be adamant that you want to own the car after the deal finishes, in which case a personal loan or hire purchase deal will be better for you.

To help you decide, ask yourself the following questions:

  • Do you have a deposit to put down?
  • How much can you afford to repay each month?
  • How much do you want to borrow?
  • Do you have a decent credit history?
  • How long do you want to keep this car?
  • Do you already have a specific make and model in mind?
  • Do you want to buy from a private seller, or a dealer?
  • If applicable, how will you pay for the balloon payment at the end of the agreement?

How to compare car finance

When you search for car finance deals with us, you can compare different types of finance against each other.

Just enter some details like your name, address and employment status. If you know it, you can tell us the number plate of the car you want to finance to help us find the most suitable deals for you.

Then you just need to choose the one that’s right for you.

What do I need to apply?

When you come to actually make your application, you’ll need to have to hand:

  • Your address
  • Your phone number and email address
  • Details of your income and employment status
  • Details of your outgoings

Can I get car finance with a poor credit score?

If you’ve had credit problems in the past it might be a bit harder to get accepted for the most competitive deals, or you might have less finance options to choose from. But it’s not impossible.

Don’t make the mistake of assuming you’ll be rejected, or that your only option is to take out car finance through the car dealership – comparing will help you find the most competitive deals for you.

Some finance providers will allow you to make a ‘soft search’ application to find out if you’re likely to be accepted before you apply properly. That’ll help prevent your credit record from being adversely affected by too many unsuccessful applications.

[1]Gocompare.com introduces customers to Runpath Regulated Services, which is authorised and regulated by the Financial Conduct Authority. Gocompare.com’s relationship with Runpath Regulated Services is limited to that of a business partnership, no common ownership or control rights exist between us. Please note, we cannot be held responsible for the content of external websites and by using the links stated to access these separate websites you will be subject to the terms of use applying to those sites

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