18th February 2021

Is it time to upgrade your run-around to something altogether more eye-catching, economical, and reliable? Car finance is designed to help you spread the cost of car ownership with a repayment plan to suit your situation. However, while it can make buying a used car affordable, weighing up the different finance options available can be difficult if you don’t know the difference between your options or your APRs. Hire Purchase (HP) and Personal Contract Payment (PCP) are the most popular types of car finance but you can use a loan or your savings to purchase a car outright.

Let’s take a look at the options in more detail. . .

What is Hire Purchase (HP)

A Hire Purchase (HP) finance agreement works by providing a loan that equals the total value of the car, minus the amount of your initial deposit. You pay back HP finance through monthly repayments at a fixed interest rate, over a pre-agreed term of one to seven years.

Typically, the deposits tend to be around 10% of the total value of the car, but this depends on your chosen dealer. The more deposit you pay upfront, the smaller your monthly repayments are likely to be. Once you have made all the repayments plus a final purchasing fee, you will own your car outright.

What is Personal Contract Payment (PCP)

With a Personal Contract Payment (PCP) car finance plan, you have more flexibility when it comes to what happens to the car at the end of the agreement. The amount you borrow is considerably less than the total value of the vehicle, minus your deposit – meaning that you pay less per month on a smaller car loan. You can reduce your PCP repayments by paying a larger deposit, and also by keeping your mileage low. PCP effectively defers part of the repayment until the end of the agreement. With PCP car finance, you usually get three options:

  • You can pay a larger final payment to own your car outright.
  • You can choose to not pay the final payment and return your car.
  • You can part-exchange it for a new one.


As you will have the opportunity to return your car at the end of the PCP term, it’s especially important to look after it. As any damage affects the value of the car. You will be asked to agree to your forecasted annual mileage at the outset of your agreement – exceeding this is likely to come with extra fees. You may want to consider putting some money aside each month to cover the maintenance of the car.

Buying a car outright

There are many used car deals currently available on the market and with sites such as Autotrader and CarWow. It is relatively easy to find the right one for you. If you can purchase a car with cash you already have, then that is probably the best option. However, for some people who do not want to use their savings or do not have enough in their savings, taking out a personal loan can be a good option. As a member of First Defence Finance, you can apply to borrow anything from as little as £500 up to £25,000* so, if you need a deposit or to purchase a vehicle, get in touch and see how we could help.

* All loans are subject to status. Terms and conditions apply. Representative 12.7% APR. If you would like a personal loan quotation, please contact our lending team: info@firstdefencefinance.co.uk 

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