Different types of car finance explained

Buying a car is an exciting experience, but with so many different types of car finance options available, it can also feel overwhelming. From PCP to HP, loans to leasing, each option has its own pros and cons.

The right type of car financing for you will depend on factors such as your budget, credit score, and long-term car plans.

In this article, we’ll explain the different types of car finance to help you decide which is right for you.

Hire Purchase (HP)

Hire Purchase (HP) is one of the most straightforward types of car financing. It allows you to pay for a car in fixed monthly instalments over a set period, usually between 12 and 60 months. Once all payments are complete, you own the vehicle outright, with no large final payment required.

Advantages of HP

• No mileage restrictions or potential damage fees.
• Available for both new and used cars.
• No final fee - once payments are complete, the car is yours.

Disadvantages of HP

• Higher monthly payments compared to PCP.
• Higher interest rates over time.
• Less flexibility if you want to switch cars frequently.

HP at Foray

Personal Contract Purchase (PCP)

PCP is a flexible finance option that offers lower monthly payments than HP. Instead of paying off the full value of the car, you cover the depreciation and have the option to buy it at the end of the agreement with a final ‘balloon’ payment. Alternatively, you can return the car or trade it in for a new model.

Advantages of PCP

• Lower monthly payments compared to HP.
• Small upfront deposit.
• The option to trade in for a new car at the end of the term.

Disadvantages of PCP

• A final balloon payment is required if you want to own the car.
• Mileage limits apply, with penalties for exceeding them.
• Additional charges for excessive wear and tear.

PCP at Foray

Personal Contract Hire (PCH)

PCH, also known as car leasing, allows you to drive a car for a fixed period without owning it. You pay a deposit followed by monthly rental payments, and at the end of the agreement, you return the car. If you like driving new cars without worrying about depreciation, this type of car financing is worth exploring.

Advantages of PCH

• Lower monthly payments than other car finance schemes.
• No concerns about the car’s depreciation.
• Predictable costs for easy budgeting.

Disadvantages of PCH

• You won’t own the own the car at the end of the lease.
• Mileage limits apply, with penalties for exceeding them.
• Fees may apply for excess wear and tear.

Personal Loan

A personal loan gives you a lump sum to buy a car outright. You can borrow the money from a bank, building society or online lender who will transfer the funds directly to your bank account. You will then need to repay it in monthly instalments at a fixed interest rate - which will depend on your credit score.

Advantages of a Personal Loan

• If the loan is unsecured, you don’t have to use the car or your home as security for missed payments.
• You own the car immediately and can modify it as you like.
• No mileage restrictions.

Disadvantages of a Personal Loan

• Requires a good credit score for competitive rates.
• Higher monthly repayments compared to some finance options.
• If the loan is secured, you risk losing the car if repayments are missed.

0% Finance

A 0% finance deal is a type of car finance option you’ll often see on a dealership forecourt. It allows you to spread the cost of a car over monthly payments without paying interest. You will usually be asked to pay a deposit at the start of the finance deal and pay the remainder in monthly instalments. 0% finance offers usually require a strong credit score.

Advantages of 0% Finance

• No interest or additional fees.
• Helps spread the cost of a car purchase.
• Fixed monthly payments make budgeting easier.

Disadvantages of 0% Finance

• May require a large upfront deposit.
• Monthly payments may be quite high.
• May require a high credit score.

Car Subscription

Car subscription services are a relatively new type of car financing that is growing in popularity. They offer an all-inclusive, flexible alternative to traditional finance. You pay a set fee each month, which often includes insurance, servicing, and road tax. Some plans allow you to swap cars regularly or eventually own the vehicle.

Advantages of Subscription

• No long-term commitment - cancel or switch cars with ease.
• No loans, interest, or finance agreements.
• Small charge to sign up.

Disadvantages of Subscription

• Higher monthly costs than leasing or finance.
• No ownership or equity.
• Possible extra charges for extra mileage or excessive wear and tear.

Paying with Cash

Paying for a car in cash is a straightforward option when it comes to different types of car finance options. When you pay by cash (or cheque, BACS, or debit card), you own the car outright from day one, with no monthly payments or interest. While it requires a significant upfront investment, it eliminates finance costs and usage restrictions.

Advantages of Paying with Cash

• No ongoing payments or interest charges.
• Immediate ownership with no restrictions.
• Potential for discounts when paying in full.

Disadvantages of Paying with Cash

• Large upfront cost.
• No credit score benefits from monthly payments.
• It can be difficult to return the vehicle if something goes wrong.

Helping You Find the Best Car Finance at Foray Motor Group

As we’ve explained, there are many different types of finance for cars to suit different individuals and circumstances.

At Foray Motor Group, we offer a wide range of new and used cars with flexible finance options and offers to suit your needs.

Visit us today to explore our range of vehicles and discuss your finance options!