Car Finance Guide

Find the best deal for you

Get my quote   

How to buy a car on finance

Guide to buying a car on finance

If you are thinking of buying a car on finance, you are certainly not alone: the majority of new-vehicle purchases in the UK are currently funded in this way, thanks both to the wide variety of loans available and also the low interest rates of the past few years.

But while a loan or other type of finance deal can enable you to buy a car that you might not otherwise be able to afford, there are a number of things you need to think about to ensure that you get the most suitable deal.

Get my quote  

What kind of finance deal is most appropriate?

There are several different types of car finance available, and some will be more appropriate to your circumstances than others. These are some of the key factors that you need to take into account:

Where do you want to buy your car?

Some finance deals such as hire purchase (also known as personal contract hire), PCP (personal contract purchase) or leasing are normally only offered by manufacturers and dealerships on the vehicles they make or have in stock.

These types of loan are mainly available for buying brand-new cars, although some used-car dealers may also offer such deals.

If you want to be able to buy a car privately or from a dealership that does not offer credit, your main option will be some sort of personal loan.

Do you want to own your car?

If you borrow money through a personal loan, you can use it to buy a car outright – so you are the legal owner from day one. Alternative forms of finance are generally not the same.

Leasing purely involves renting the car over a long period, say, two or three years, although there may be the option to buy the car at the end of this term. With hire purchase, monthly payments are made with the aim of becoming the car’s owner at the end of the loan period – although the vehicle remains the property of the dealer or manufacturer until that point.

And with PCP, borrowers have the option of making a lump-sum payment at the end of the term in order the buy the car. Alternatively, they can start a new PCP loan on a different vehicle, or simply hand the vehicle back and walk away.

Do you have money to put down as a deposit?

With leasing, hire purchase and PCP, customers normally have to put down a lump sum as an initial deposit, although the size of this payment can vary from deal to deal. A personal loan, on the other hand, can be taken out for the full sale price of the car – provided your credit record is good enough and you can afford the necessary repayments.

Get my quote  

Checking your budget

Another important aspect when considering finance is working out what you can afford in terms of initial deposits and monthly repayments. The RAC Car Finance Calculator can give you an idea of how much a loan of any size is likely to cost in terms of monthly payments based on a typical rate of interest and different loan periods.

Extending your loan over a longer term – five years, say, rather than three – can help to reduce your monthly outgoings to a more affordable level. But this will mean that you end up paying more in total interest over the life of the deal.

Whatever type of finance you are interested in, your credit history will play an important role in determining whether your application is accepted and what rate of interest you will pay. It is worth checking your credit report before you apply to ensure that there are no mistakes on it that could prevent you getting a loan.

Click link for further information on what happens after car finance.


RAC Loans is a trading name of RAC Financial Services Limited who act as a credit broker and are not a lender. Registered in England and Wales no. 5171817. Registered office: RAC House, Brockhurst Crescent, Walsall, WS5 4AW. RAC Financial Services Limited is authorised and regulated by the Financial Conduct Authority. Firm registration number 313989. RAC Loans are provided by Freedom Finance who act as a credit broker and are not a lender. Freedom Finance is a trading style of Freedom Finance Limited registered in England and Wales. Company number 06297533. VAT Registration Number: 257 0001 44. Freedom Finance Ltd is authorised and regulated by the Financial Conduct Authority. Firm registration number 662079. See Registered office: Atlantic House, Atlas Business Park, Simonsway, Manchester M22 5PR. RAC Financial Services Limited do not charge for introducing you to Freedom Finance but may receive a commission payment from Freedom Finance on completion of your loan application.

© 2022 RAC Motoring Services. All rights reserved.