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Not sure what finance is right for you?

We’re here to help. This handy table should aid your decision.


Hire purchase Personal contract purchase Personal loan
Requires initial deposit Usually requires deposit Usually requires deposit
You own the car outright
Car is yours at the end of the agreement
Fixed monthly payments
Optional balloon (final) payment
Excess mileage charges
Secured against an asset (eg car)



Compare finance options and see your exact monthly payments.

Personal Contract Purchase

Personal Contract Purchase (PCP)

Personal contract purchase or PCP is similar to a hire purchase. You’re likely to be asked to pay an initial deposit, and then monthly payments for a set period. The higher your deposit, generally, the lower the monthly payments. Even with the deposit though, monthly payments are typically lower than you’d find with a hire purchase deal or a personal loan. This is because you'll be paying off the value of the depreciation of the car, not the full value of the car.

At the end of the agreement, if you decide you want to keep the car, you’ll need to pay what’s known as a ‘balloon payment’. This covers the cost of the vehicle and transfers ownership from the finance company to you. If you don’t want to keep the vehicle, you can give it back, or start a new PCP deal and get a new car.

Hire purchase

Hire Purchase (HP)

Hire purchase or HP is an arrangement where you hire the car from a finance company until you’ve fully paid for it. The finance company own the vehicle until the final payment is made, after which time it’s yours to keep. Hire purchase tends to require a deposit usually 10% of the car’s value. The higher the deposit, the lower the monthly payments.

Loan updated

Personal Loan

A personal loan sometimes called an unsecured loan, allows you to borrow a lump sum over a fixed term. This loan isn’t secured against anything. That means if you use a personal loan to pay for your car, you’ll own it outright from the day the money is transferred to the dealer. As such, you can sell the vehicle at any time, without needing to settle up with the finance company first.

Why compare car finance with Confused.com?

Unlike many sites, once you’ve entered your details we’ll be able to show you the exact APR that you’ll be offered for your loan or hire purchase deal. We don’t show representative APRs as we’ve teamed up with the finance companies to get tailored quotes, just like we do for car insurance.

The monthly payments you see are exactly what you’ll pay each month, providing you don’t make any changes to loan terms, such as take a payment holiday or extend the period. Knowing exactly what you’ll be offered means it’ll be easier to manage your budget and make sure you get the best deal.

What’s the difference between hire purchase and loans?

Hire purchase (HP) and loans are both common ways to pay for a new car, but they have some key differences. When you take out a hire purchase agreement you’re effectively hiring your vehicle from the finance company. The finance company will own the vehicle until the final payment and, until that last payment is made, you’ll need to declare that they have an interest when you take out car insurance. Unlike buying a car with a loan, with HP you may be asked to pay a deposit, which could be up to 10% of the car’s value. The higher the deposit, usually the lower the monthly payments.

If you use a loan to pay for your new car, you’ll own it outright from the day the money is transferred to the dealer. This means you can sell the vehicle at any time, without needing to settle up with the finance company first.

Using a personal loan to pay for a new car also means you aren’t restricted where you can buy the vehicle from. Often HP deals will state that you’ll need to buy the car from a reputable dealer, so you won’t be able to use if to a private sale or potentially smaller dealers.

What’s personal contract purchase?

Taking out a personal contract purchase (PCP) deal is similar to a hire purchase agreement: you’ll often be asked to pay an initial deposit and then monthly payments for a set period. The higher your deposit, generally, the lower the monthly payments. Even without the deposit though, monthly payments are typically lower than you’d find with a hire purchase deal or a personal loan. This is because your instalments pay off the difference between the initial value of the car and the predicted value at the end of the agreement. However, as you’re only paying off the depreciation, you won’t own the vehicle at the end of the term.

At the end of the agreement, if you decide you want to keep the car, you’ll need to pay what’s known as a “balloon” payment. This will cover the cost of the vehicle, and it’s this payment that transfers ownership from the finance company to you. If you don’t want to keep the vehicle, you can hand it back, or start a new PCP deal and get a new car. The value of the car will sometimes be more than the finance company predicted, and if this is the case you can put this difference towards starting a new PCP deal.

As the value of the vehicle at the end is important, so is the condition of the car and its mileage. When you take out a PCP deal you’ll need to specify your annual mileage. If you go over this you could end up paying additional charges – up to 10p for every mile over your set limit. But this will be confirmed when you take out your deal.

How can I save on car finance?

Unfortunately it’s not as simple as being able to say that a loan is always the cheapest, or a credit card is always the most expensive. You need to take into account how much you’re spending, how much you can afford to pay back each month and how good your credit history is.

Comparing different types of finance can be difficult for a number of reasons. For example, a dealer will often throw in freebies, or a loan company may have a one off fee in the first month, or a hire purchase deal may rely on a deposit. The great way to compare deals is to look at the total cost of credit as this will take into account the monthly payments, and how long you’ll end up paying back the loan for.

One thing to be careful of when comparing finance deals is that extending the period of a loan may bring down the cost of monthly payments, but it could also mean you’ll pay more interest overall, so it’s important you’re aware of this.

How do I choose?

Choosing between the different ways to finance a new car can be overwhelming, so we’ve simplified your options as much as we can. Among other factors, you’ll need to take into account the car you’ve chosen, how quickly you’re likely to change the vehicle, and your budget.

Each type of financing has different features, and once you’ve decided what is important to you, it’ll lead you to the type of financing that fits best. There’s no hard and fast rule with car finance – everyone’s circumstances are different, so you’ll need to ask yourself a few questions before you start, such as:

  • How much can you afford to pay back each month?
  • How much do you want to borrow?
  • What is your credit history like?
  • How long do you want to keep the car?

Answering these questions is a great starting point and they’ll help you understand if there are any options that won’t be suitable. You can then make sure you’re getting the best deal by comparing all of the options available, and making your decision based on your own circumstances.

Can I get car finance if I have a poor credit history?

Your credit history is taken into account when you apply for car finance. But even if you have poor credit, or you are completely new to it, it doesn’t mean you’ll be rejected, or that your only option is to take out finance through a car dealer.

Instead, it will probably mean that your monthly payments and / or the amount you repay overall are higher than some of the rates you’ve seen advertised, and you may only get quotes from a limited number of “specialist” providers.

But all in all, there are lots of different ways to pay for a new car, and with so many options available most people will be able to find something that fits their needs.

You can see tips in our guide to improving your credit rating.

Understanding your options

Everyone has a different financial situation, so there's no 'one size fits all' with financing your next car.

To decide the right option for you, it helps to take several factors into account:

  • Do you have any savings for a deposit?
  • What's your credit history like?
  • Are you likely to change your car again within the next three years?
  • Have you chosen the car yet?
  • Is it a private sale, or through a dealer?
  • How much are you looking to spend?

Once you’ve answered these questions, you’ll be in a much better position to choose the best way to finance your next car.

What you'll need to apply

  • Your current UK address
  • A contact phone number and email address
  • Bank account details
  • Annual income
  • General outgoings
  • The car details

Searching for car finance on Confused.com will not affect your credit rating as only soft searches will be carried out. When you go on to apply the soft search will become a “hard search” and will be visible to lenders when you make other credit applications.

Still unsure about car finance? Use our car finance calculator.

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