How does car finance work?
Car finance lets you pay for a car over time. You agree payments with a lender, usually with interest added. A deposit may also be needed.
With hire purchase or personal contract purchase, the finance company owns the car during the agreement. You can use it while making the agreed payments.
A personal loan works differently. You borrow money to buy the car, then repay the loan. With an unsecured loan, the car isn't security for that borrowing.
Start by deciding whether you want to own the car. Then check what each option would cost from start to finish.
What types of car finance are there?
Hire purchase, or HP
With HP, you pay any deposit, then monthly payments covering the remaining cost and interest. Ownership passes after all required payments, including any purchase fee.
Standard HP has no large optional final payment. Read how hire purchase works for the details.
Personal contract purchase, or PCP
PCP leaves part of the car's cost until the end. You pay this optional final amount if you want to own the car.
You can instead return it under the agreement's terms. Mileage and condition charges may apply. Our PCP guide explains the choices.
A personal loan
You buy the car with borrowed money and own it from purchase. You still owe the loan if you sell the car. See car loans explained.
How much does car finance cost?
The cost depends on the amount borrowed, interest rate, fees and agreement length. With PCP, the optional final payment also matters.
APR means annual percentage rate. It helps show the yearly cost of borrowing, including interest and certain fees. Check the total amount payable too.
A longer term can reduce monthly payments but increase total interest. A smaller monthly payment doesn't always mean a smaller overall cost.
Use a calculator to explore your budget. Its result is an estimate. It isn't a quote or a lending decision.
Do I need a deposit?
Deposit requirements vary by lender and agreement. Some agreements may allow borrowing without a deposit, subject to the lender's checks.
A larger deposit reduces the amount you borrow for the same car. That can reduce interest costs, but keep money aside for essential bills and unexpected costs.
If you use an existing car towards a deposit, check its value and any outstanding finance first. Its full value might not be available to put down.
What else should I budget for?
Finance payments are only part of the cost. Allow for insurance, vehicle tax, fuel or charging, servicing, tyres, repairs and any MOT needed.
Check insurance costs for the actual car before committing. Ask whether the finance agreement requires a particular level of cover.
Leave room for changes in income and bills. Work out what remains after housing, food, existing debts and other essentials, rather than starting with a car payment.
Will car finance involve a credit check?
Lenders check your credit record and whether repayments are affordable. They may ask about your income, spending, address history and employment.
Ask a car finance specialist which searches will happen and when. Don't assume that requesting a quote and making a full application involve the same checks.
A hard search leaves a record other lenders can see. Several applications close together can affect future lending decisions. A lender can decline an application.
MoneyHelper explains credit reports and searches.
Who owns a car bought on finance?
With HP and PCP, being the registered keeper doesn't make you the legal owner. The finance company keeps ownership until the agreement's purchase conditions are met.
You can't simply sell the car while that finance remains outstanding. Ask the lender how to settle the agreement before any sale.
Check the agreement before making changes to the car or taking it abroad. Rules about use, maintenance and permission vary by lender.
Can I cancel car finance within 14 days?
For credit agreements covered by this right, the Consumer Credit Act 1974 gives you 14 days to withdraw without giving a reason.
The period normally starts when the agreement is made or you receive the required agreement information, whichever is later.
Tell the lender within that period. You must repay the credit and interest due within 30 days of giving notice.
Withdrawing from credit doesn't automatically cancel the car purchase. You need another way to pay for the car unless the purchase is separately cancelled.
Can I pay off car finance early?
For agreements covered by the Consumer Credit Act 1974, you can settle early. Ask the lender for a settlement figure and its expiry date.
This shows what you need to pay to clear the agreement. It takes account of the applicable reduction in future interest and any permitted charges.
Returning the car through voluntary termination is a separate option for qualifying HP and PCP agreements. It involves ending ownership plans, rather than buying the car sooner.
Read about ending car finance early before choosing either route.
Can I return the car after paying half?
Under the Consumer Credit Act 1974, qualifying HP and PCP agreements have voluntary termination rights. You can end the agreement and return the car.
Your liability is generally limited to half the total amount payable, provided you've taken reasonable care of it. Arrears and condition issues can affect what remains due.
If you've paid less than half, you can end the agreement but must make up the shortfall. The figure includes interest and, for PCP, the optional final payment.
Half the total amount payable isn't half the agreement's months. Check the termination figure in your contract and tell the lender clearly in writing.
What happens if I miss payments?
With HP or PCP, the car may be taken back if payments aren't kept up. Missed payments affect your credit record.
For agreements covered by the Consumer Credit Act 1974, once you've paid a third of the total amount payable, repossession needs a court order unless you consent.
That protection doesn't cancel the debt. Contact the lender as soon as payments become difficult. Ask StepChange for free debt help.
What if the car is faulty?
Under the Consumer Rights Act 2015, a car supplied on HP or PCP must be of satisfactory quality, fit for purpose and as described.
The finance company is responsible for the car's quality. Age, mileage and price matter when deciding what's reasonable. Report faults promptly and keep evidence.
Complain to the finance company first. If unresolved, you may be able to use the Financial Ombudsman Service.
How do I get started?
Fill in the quote form. A car finance specialist then gets in touch, explains the options and gives any quote and any advice.
The lender decides any application and provides any finance. Read the agreement and ask about anything unclear before signing.
Updated 7 November 2026
