What Are the Different Types of Car Finance Available?

Looking for your next car? Choosing one can be a minefield, let alone selecting how you want to buy it.

But before you even start shopping around, you should do a Parkers car valuation. How much money you have to spend ultimately determines what car you’re gonna get. And if you already own a car, knowing how much it’s worth is essential.

Got it? Great. Picked a rough idea of what car you want? Mega. The next decision is choosing finance or cash. And if you want to do the former, you’ve got a variety of options available to you. Below we highlight what they are and offer some guidance.

The different types of car finance available

PCP

PCP (Personal Contract Purchase) is the most common type of car finance scheme in the UK.

It allows you to spread the cost of a car across a deposit, a set of monthly payments and if you want to buy outright, an optional final payment.

PCP is great for flexibility. If you don’t know if you want to buy the car outright, you can defer the choice right to the end of the agreement.

HP

Hire Purchase is the simplest of the major forms of car finance.

You spread the cost of a car across a period of time. Once you’ve paid the last instalment, you own the car. Unlike with a PCP, there’s no need to pay a final instalment.

This is good if you know you want to buy the car at the end. You also don’t have to adhere to any mileage caps as you’re locked into buying it.

Leasing

Leasing, sometimes called Personal Contract Hire or PCH, is becoming the norm for many new car people. The reason we’re not saying owners here, is that you don’t own the car and you never will.

It works much in the same way as renting. Stump up an initial payment (not a deposit), follow it up with a set of fixed monthly payments and voila. When your agreement is up it’s time to find a new car.

This is great for people who don’t want to be tied into owning a car. Typically lease deals are the least amount of money per month, but this is generally only available with brand spanking new cars.

Bank loan

A good old fashioned personal loan can be the simplest and best way to buy a car. It effectively lets you buy a car in cash. You own it from day one and you pay the bank back.

Car manufacturers have been ramping up APR for a while now, which means the APR from banks is typically lower. This is a great choice if you want a no-nonsense approach to buying a car.

Halal car finance

This is aimed at Muslims following Sharia Law. It allows people to divide the cost of a car into monthly payments, while still following Islamic law. This is neccessary because in Islam charging interest is forbidden.

The amount borrowed is essentially the price of the car, plus any interest a seller would charge to non-Muslim buyers. So it’s not just an easy way to pay no APR.