read more on your finance options
Here are some car finance options:
0% credit card - the cheapest option if possible
If you can get a large enough credit limit (which can be difficult unless you buy a really cheap new car), you can buy a new car on a 0% purchase credit card. You’ll avoid paying any interest, provided you pay off the debt before the deal comes to an end.
However, there's a lot of pitfalls with this option, which won't make this a realistic option for many.
Firstly, many dealers won't accept credit cards. Or, some will accept them, but will only allow you to pay a limited amount on it - eg, some Mini dealers will only let you pay £2,000 on a card.
Secondly, if you're using a credit card, you'll be limited in the amount you're able to spend - not many will give you a limit of more than £5,000, and most will be well below this.
But if against all odds, you are able to use a credit card, remember to keep up minimum monthly payments (if you don't, you could lose the 0% deal), and make a note in your diary of the end date so you can plan how to repay.
For more, see our Buying a Car with a Credit Card guide.
Personal loans - one of the cheapest ways to pay for a car purchase if you don't have savings to pay with
If you’re happy signing up for monthly repayments you could opt for a personal loan at a lower rate than dealer finance. But rates vary widely, so shop around on price comparison sites for the best deal. The best are only on offer to those with untarnished credit histories.
Rates vary depending on how much you're borrowing. Borrow a small amount, for example £1,500, and you could pay as much as 8% to 15% interest. If you're borrowing more, for example £15,000, you could pay as little as 3.5%.
But, before you go ahead thinking that sounds very cheap, there's a sting in the tail. These rates are what are known as 'representative' APRs. This means that only 51% of people accepted for that loan need to get that rate. The other 49% can, and often do, get given a higher rate.
For more, see our Buying a Car with a Personal Loan guide.
Hire purchase - similar to a loan but typically easier to get
If you choose hire purchase, you’re simply securing a loan on the car itself. You pay a deposit of typically around 10% of the car’s price and repay the balance plus interest over the loan period. But unlike a personal loan, you won’t own the car until you’ve made the final payment. So you can’t suddenly decide to sell the car without the lender’s permission.
It also means that if you default on your payments, the finance company will take the car and you won’t get any money back.
For more, see our Hire Purchase guide.
Leasing - could work out cheaper if you're not fussed about owning the car and want the latest model
Alternatively, you could ‘rent’ your car through a leasing deal, where you pay a monthly fixed sum and just hand the car back at, say, the end of three years. This option also means no forking out for MOTs or repairs – it’s a bit like renting a flat. You can use the car, but you don’t own it, so it’s not your responsibility to keep up repairs.
It's popular with companies, but can be great for personal use if you've got your heart set on a brand spanking new car that is really expensive. For other cars it can be mega expensive. There are car leases out there that start from £99 per month.
For more, see our Leasing guide.
Personal contract purchase - a type of loan that is super flexible with the option to own the car at the end of the deal
Another way to 'rent' a car is to opt for a personal contract purchase - or PCP for short. It's basically a loan to help you get a car. But unlike other loans - such as a personal loan or hire purchase - you won’t be paying off the full value of the car and you won’t own it at the end of the deal (unless you choose to, and if you do, you'll need to pay something called the balloon payment).
At the start of a PCP deal, you'll be asked to specify how far you'll drive the car each year. It's important to be as accurate as you can, as if you go over the agreed mileage limit, the finance company will charge 7p-10p for every mile you are over.
Watch out for this, as 1,000 miles over will see you shelling out £100 at the end of the deal.
For more, see our PCP guide.