Buying a Car: What Are the Options?

Each week, we approve dozens of loan applications from armed forces personnel, and buying a car is one of the top reasons why people borrow with us.

Whether it’s a reliable runner for the family, reducing running costs, or upgrading to a fancy new EV, there are all kinds of reasons why you might be in the market.

And there are a staggering number of ways to pay for it too, with all sorts of deals to help you get more for your money, and to spread the cost.

So do you know your HP from your PCP and PL? And is it worth it, compared to borrowing to buy outright? We run through your options, and what you need to know about each.

Understanding Your Options

Personal Contract Payment (PCP)

PCP is one of the most popular options and the one you’re most likely to see offered by car dealers. These types of contracts can seem quite attractive. However, they can also be quite complex, so it’s important to understand what you’re signing up for.

Just like with other types of finance, with a PCP, you’ll make a monthly payment. This repayment is based on an amount less than the value of the car, which keeps it low. Because of this, PCP can often appear more attractive than other forms of finance. The downside is that you won’t own the car unless you decide to make an additional one-off payment (called a balloon payment) at the end of the contract.

The big advantage of PCP is flexibility. Factors such as your mileage and the size of your deposit will affect how much you pay each month. There is no obligation to buy at the end. You can simply return the car and, if you want to, take out a new PCP with a newer model.

This flexibility can mean extra restrictions on how you use and what you can do with the car. For example, any damages or additional mileage will affect the value of the vehicle. This is likely to mean additional fees if you end up returning it.

Hire Purchase (HP)

Another option is Hire Purchase (HP). Hire purchase is a type of secured borrowing that works in a similar way to a mortgage. You’ll pay a deposit upfront (usually around 10% of the value of the car), and then fixed monthly repayments over an agreed period of time. These repayments cover the cost of the car plus interest.

Like with a mortgage, you won’t actually own the car until you have paid off the loan in full. If you miss or fall behind on payments, you may lose the car. Sometimes there may also be a one-off purchasing fee to pay before you take full ownership of the car.

Personal Loans

If you don’t like the complexities of PCP or HP and prefer to keep things simple, another option is to borrow the money you need as a personal loan. This would enable you to buy the car from the dealer in full.

The advantage of this option is that the loan provider and car dealer are separate. This allows you to shop around and get the best deal for each. It also means that you only have to borrow exactly what you need, and can use any savings you might have towards the cost.

The main downside of this approach is that this type of loan is unsecured. This makes it higher risk from the lender’s perspective. It means that you may pay a higher rate, be able to borrow less, or be less likely to be accepted.

Depending on your financial situation we can offer a personal loan between £100 – £15,000 to cover the costs of buying your new car. You can then repay your loan each money directly via your Armed Forces salary, with a simple fixed rate amount over the space of 5 years. 

Saving up or Second Hand

Finally, without sounding like your Mum, it’s worth considering whether you really need to borrow at all. The reality is that all forms of borrowing mean paying money in interest. That’s money which could be spent on other things.

If you can afford to wait before upgrading, or save gradually so you can buy the car outright, it might end up making the most sense financially.