Introduction
Car finance can be a confusing topic for many UK buyers. With multiple finance options, APR rates, and hidden fees, it’s crucial to understand your choices before signing a deal. In this guide, we break down the different types of car finance, how APR works, and a real-world finance example for a £30,000 car.
Types of Car Finance in the UK
- Personal Contract Purchase (PCP)
- Lower monthly payments.
- Balloon payment at the end.
- Ideal for those wanting flexibility.
- Hire Purchase (HP)
- Higher monthly payments, but you own the car at the end.
- Best for those who want full ownership.
- Leasing (PCH)
- You never own the car.
- Low monthly cost but mileage restrictions.
- Bank Loan / Personal Loan
- Car is yours outright from day one.
- Higher interest rates may apply.
Understanding APR & Interest Rates
APR (Annual Percentage Rate) determines the cost of borrowing.
- Example:
- Loan Amount: £30,000
- APR: 6.9%
- Term: 48 months
- Monthly Payment: ~£710
- Total Repayment: ~£34,080
Choosing the Right Finance Option
- If you want to upgrade every 3-4 years → PCP is best.
- If you prefer ownership → HP or bank loan is better.
- If you just need a car with low monthly costs → Leasing works well.
Conclusion
Understanding car finance helps you save money and make informed decisions. Use Carfundo’s car finance calculator to compare deals and find the best option for your budget.
