Published: 12/08/2021

Looking for a new car?

A new car can cost thousands of pounds, a big chunk of cash to pay in one go! Ideally, you’d save up and pay in one go. But the demands of life may mean you need a new set of wheels sooner than you can save for it.

What are the different types of Car finance

There are a number of ways to finance your car with credit.

Personal Loan

With a  personal loan you pay back over a set period and interest rate and this could give you enough money to buy a car outright.

The main advantage is that it’s unsecured, so you don’t have to use an asset (such as your car or house) as security. If you don’t repay, security is something the lender can forcibly sell to get their money back. It’s less risk for you, but more risk for the lender, so you may need a good credit score to get accepted.

Sometimes it’s easier to get approved or a better rate by applying for a loan that’s secured against your car. However, you may lose the car if you can’t keep up with repayments.

1Plus1 offer personal loans backed by a guarantor, subject to both meeting our affordability and credit worthiness criteria.

If you think you may be interested in a 1Plus1 Loan, please give us a call on 0330 1200 313 and one of our friendly staff will be more than happy to discuss the process with you, or start your application here.

Hire Purchase

With a hire purchase agreement, normally you put down a deposit to drive the car away. Monthly payments are made towards the cost of the car, but you won’t own it until all payments are paid and any ‘option to purchase’ fee. Very different to a personal loan where you own the car outright from day one.

Remember, with hire purchase your debt is secured against the car. If you stop making your payments, the company may take the car off you to recover the money you still owe. You may have to pay a penalty fee for ending a hire purchase agreement early.

Some more about hire purchase

0% Finance

You may need a large deposit for this option, and your monthly payments may be quite high. On the plus side you shouldn’t have to pay any interest on the debt, as long as you stick to the term of the agreement and make all your payments on time and in full.


With a car lease, you just make regular payments for using the car but you don’t ever own it. The monthly charge is usually based on the value of the car, how long you’ll use it for, and an agreed mileage allowance.

Costs may be less each month than paying off a car bought on credit, but there may be extra costs involved. If the car’s a bit damaged at the end of the lease, you may be charged an ‘excessive wear and tear’ fee.

Comprehensive car insurance is normally required Some companies may insist you take out gap insurance, which gives them more protection against damage or theft.

Find out more about leasing

Personal Contract Purchase (PCP)

One of the most common forms of new car finance are PCP loans. They can also be one of the most complex. You don’t buy the car outright. You put down a non-refundable deposit towards the car’s price, and borrow the rest. You’ll then make monthly payments to cover interest and the cost of depreciation.

At the end of the contract, you’ll usually have a few options:

  • Buy it outright at an agreed price.
  • Trade it in for a replacement with a new PCP contract.
  • Return it – with nothing more to pay, as long as you’ve kept to the terms and the car isn’t damaged.

People who like to change their car regularly often use PCP loans. They can be quite flexible, usually offering low monthly payments since you’re not paying off the car. Usually, the interest rates are higher than other types of loans. Importantly, read the small print carefully. Watch out for penalty charges for exceeding the mileage allowance, and damage to the car while you’re using it.

You’ll usually need a good credit history to get approved for a PCP agreement, , especially for 0% or low APR deals.

Find out more about personal contract purchase

0% purchase credit card

Using a  0% purchase credit card to buy outright could be another option, as many car dealers now accept credit cards.

This option may be most suitable for people with good credit You’ll need a good credit score to get a high limit on a purchase card.

A credit card gives you more flexibility. If you meet the minimum repayment, you can decide how much to pay off each month. With a 0% purchase card, you won’t pay interest on your purchase for a set period. But make sure you meet the minimum monthly payments on time and in full, otherwise you may lose the promotional rate. If you can, pay off the debt before the promotional period ends, to avoid paying standard rate interest.