Buying a car Buying a car with dealer finance

Finance packages can be very lucrative for dealers

Many car dealers, car brokers and car supermarkets offer finance packages to people buying a car. These can be very lucrative for dealers but confusing for buyers. However, whatever package you go for, there are three golden rules when choosing dealer finance.

Always compare finance deals using the annual percentage rate (APR) and the total amount repayable. Never rely on the ‘flat rate’ interest that dealers often quote.
Haggle on the APR – dealers will often drop it if you do, saving you hundreds of pounds over the life of the loan.
Always insist on written finance quotes to take away and mull over – if the dealer refuses to do this, don't do business with them.

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Buying a car with hire purchase (HP)

This is a simple form of finance, secured on the car itself. You pay a deposit (often 10%) and then repay the balance, plus interest, over the loan period. There are usually administration and ‘option to purchase’ fees, but if you object to these the dealer should agree to knock them off.

You don't own the car until you've made the final payment, so you can't sell it without the lender’s permission. On the plus side, if the car goes wrong during the loan period, the lender is jointly responsible with the dealer for fixing it.

Buying a car with 0% finance

This is usually a special-offer package for cars that the manufacturer or dealer needs to shift – such as outgoing models.

You pay a large deposit upfront (35% or more is common) but then there’s no interest on your monthly repayments. The bad news is that it can be hard to get a discount on top of 0% finance and if you miss any payments, you're usually switched to a higher interest rate.

Buying a car with personal contract purchase (PCP)

PCPs can suit buyers who want to change their car every two to four years. You pay a deposit (often 10%) and low-monthly instalments over a fixed period, but defer a lump sum until the end of the contract.

This ‘minimum guaranteed future value’ (MGFV) is the amount the lender guarantees your car will be worth after three years, say.

At the end of the term, you can pay the lump sum to keep the car, hand the car back and pay nothing, or sell it privately to fund the balance. Stick to the agreed mileage limits and keep the car in good nick to avoid any complications, and make sure you read the small print.

Buying a car with personal leasing

Like PCPs, leasing offers low monthly payments (starting from around £100) but you have no option to buy the car. The type of car, length of contract and agreed mileage limits determine the overall leasing cost. You normally have to pay up to three months’ rental in advance.

Planning to buy your next car but need help getting the best finance deal?

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