Why Buy a Car on Finance? | 8 Solid Reasons for UK Drivers

Buying a car is one of the most important decisions of life. Whether it is a used car or brand new, the cost can stretch your savings. Fortunately, a car on finance makes it more affordable so that you can pay for your favourite vehicle in low monthly instalments. You don’t have to pay the whole amount for a car at once.

In the UK, the majority of new car buyers get a car through car finance, where they pay monthly without draining their bank accounts.

In this blog, we will walk you through solid reasons to consider buying a car on finance and also explain potential downsides that you should also consider. 

Key Takeaways: Why Buy a Car on Finance?

Buying a car on finance in the UK lets you drive a better car sooner, spread costs, protect savings, boost credit, access extras, enjoy flexibility, and safeguard other assets.

• Drive a Better Car Sooner – Get the car you want today without saving for years.

• Affordable Monthly Payments – Spread the cost over time instead of paying the full price upfront.

• Boost Your Credit Score – Timely payments help demonstrate financial responsibility.

• Tax Benefits for Businesses – Certain finance deals may reduce taxable profit.

• Access to Extras and Packages – Some agreements include servicing, warranties, or breakdown cover.

• Flexibility to Upgrade or Change – PCP or leasing options let you switch cars regularly.

• Protect Other Assets – Car acts as collateral; your home and savings remain safe.

• Protect Your Savings – Spread payments while keeping emergency funds intact.

Want to Sell a Car on Finance in the UK?

If you’re looking to upgrade, you can sell your car on finance easily with Exchange My Car. Settle outstanding finance and get paid fast, anywhere in the UK.

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How Car Finance Actually Works?

Before buying a car on finance, you should be aware of the whole process. At first, it might be confusing, but once you understand, you will find it simple and it will make you more confident to go for it.

In the UK, there are different options to finance a car:

1. Hire Purchase (HP):

• You pay a deposit up front, which is usually 5 to 20% of the car’s price
• Then, you make fixed monthly payments over an agreed period, typically 1–5 years.
• Once the final payment is made, the car is officially yours.

2. Personal Contract Purchase (PCP):

• PCP is popular for people who like driving newer cars every few years.
• You pay a deposit, followed by lower monthly payments than HP, because you’re only paying off part of the car’s value.
• At the end of the agreement, you can either hand the car back, pay a final “balloon” payment to own it, or trade it in for a new car.

3. Personal Loans

• You borrow the full cost of the car from a bank or lender, then repay in fixed monthly instalments.
• The car is yours from day one, and there’s no mileage limit or end-of-term payment.

4. Leasing / Personal Contract Hire (PCH)

• A bit like renting the car for a set period, usually 2–4 years.
• You make monthly payments, but the car isn’t yours at the end. This is mostly for business users or those who like changing cars regularly.

8 Reasons to Consider Why to Buy a Car on Finance

There are several reasons why you should consider buying a car on finance. 

1. More choice of cars

One of the most important aspects of buying a car on finance is that you get more options of cars. Opting for car finance generally opens up a whole world of choice that you don’t typically get with a cash purchase. Primarily because finance allows you to pay off the vehicle in low monthly instalments.
Buying a new or nearly new car also ensures that you will get access to the best safety tech on the road and spend less on repairs at the garage. Plus, most manufacturers offer generous warranties to keep you covered for the first three years or more for bonus peace of mind. 

2. Affordable option

If you’re fortunate enough to be able to purchase a car up front, you are a minority. Over 90% of new car purchases in the UK are bought with the help of car finance. The reason is that it is not that easy to purchase a brand-new car these days, as not everyone can afford it.

What’s more, any savings you do have can be put to better use elsewhere as you reap all the rewards of financing your vehicle. That said, not everyone is eligible for car finance. So, do understand your eligibility status before you go for car finance options.

3. Boost your credit score

Getting a car on finance is one of the best ways to boost your credit score. As long as you make all of your payments on time and none are missed, you’ll quickly improve your score.  As you demonstrate to other potential lenders how good you are at managing your credit, no matter what type of car finance you choose. 

So if you’re hoping to impress a mortgage dealer or simply improve your chances of being approved for future loans without a fuss. Then applying for car finance is the way to go, especially if you are new to the credit market. 

4. Tax benefits

If you are a business owner, you’re likely already aware of all the taxes you have to pay. But if you choose to buy car finance with your business name, then your purchase may be tax-deductible. 

The type of car finance you choose will ultimately decide how much tax relief you get. For example, with a hire purchase agreement, company expenses can only cover the interest payments.

However, claiming capital allowances can lower the overall costs of your chosen vehicle as it reduces taxable profit. But like all finance agreements, make sure you stick within the agreed mileage limits and keep the car in good condition. 

Bear in mind, lenders will rarely cover the VAT costs, so be prepared to fork out a bit extra to cover the expenses. 

5. Access to extras and packages

Many finance deals include extras like servicing, warranties, or breakdown cover. This gives peace of mind. Some cars on finance come with added hardware like speed limiters and dash cams.

Some finance packages include a host of extras, such as discounts on travel insurance, holidays, roadside assistance, and more. Make sure you look at all the fine print to see what’s included in your deal. 

6. Greater flexibility (upgrade, change)

The type of car finance you choose should reflect your lifestyle. So if you want to own the car eventually, you should consider a personal loan or personal contract purchase (PCP) as an option. 

But, if you’d rather keep monthly costs down and switch your car more regularly, you should look at personal leasing or personal contract hire (PCH). While there is no option to buy at the end of your term, it allows you to upgrade your vehicle more easily. 

If you’re not too bothered about what car you drive away from the dealership, you should think about new manufacturer finance deals. These include 0% finance, no-deposit deals, lower interest on new cars and deposit contribution discounts, which can all save you money in the long run. 

7. Protect other assets (car as collateral)

When you get a car on finance, the agreement is usually secured against the car itself not your home or other assets. This means if you fail to make instalments on time, the lender could take back the car. All your house and other personal belongings stay safe. It’s a practical layer of protection compared with some loans that use property as security.

8. Protect your savings

Paying cash up front can drain your savings. It leaves little room for the unexpected things, for example, that’s a home repair, a medical bill, or simply life’s day-to-day surprises. Buying on finance lets you spread the cost while keeping your emergency fund intact.

That way, you can drive the car you need today without emptying your bank account tomorrow. For many UK drivers, it’s a safer balance between comfort and caution.

Potential Downsides and What to Watch For

Buying a car on finance can be a great way to get the car without paying full price. But there are some downsides that you should be aware of before making a decision.  

• Interest Adds Up: Even with affordable monthly payments, the total cost of the car can end up higher than buying outright. Always check the Annual Percentage Rate (APR) and total payable.
  
• Mileage Limits (PCP/Leasing): Agreements often have mileage restrictions. Exceeding them can lead to extra charges at the end of the term.
  
• Missed Payments Hurt Credit: Skipping or late payments can damage your credit rating and may even result in repossession. Ensure the monthly payment fits your budget.
  
• Early Termination Fees: Ending a finance agreement early can incur penalties. Always read the small print before signing.
  
• Depreciation & Equity Risk: Cars can lose value faster than expected, leaving you with little or negative equity, especially with PCP deals.

Comparison Table: Finance vs Cash Purchase

When deciding how to buy your next car, it helps to see how finance stacks up against paying cash. Here’s a simple UK-focused comparison:

Frequently Asked Questions 

What is the best car finance option in the UK?

The best option depends on your budget, lifestyle, and the car you want to own. Also, it’s important to compare APRs, monthly payments, deposit requirements, and any mileage or condition limits. Here is how you can make your decision. 

• Hire Purchase (HP) is ideal if you want straightforward ownership, the car is yours once all payments are made.
• Personal Contract Purchase (PCP) works well if you like changing cars every few years and want lower monthly payments.
• Personal loans or leasing may suit different needs, such as full ownership from day one or flexible upgrades.

Will car finance raise my credit score?

Yes, it does raise your credit score if you manage responsibly. Making regular, on-time payments shows lenders that you can handle credit well, which can boost your credit rating over time. Missed or late payments, however, can damage your credit and may affect future loans.

Is PCP or HP better?

It depends on your priority. For HP, you might pay higher monthly instalments but own the car outright in the end. No mileage limits, simple terms. While going with PCP, you have to pay lower monthly payments, an optional final payment (balloon payment) to own, or trade-in options. This is good for drivers who like changing cars frequently. But comes with mileage restrictions and possible end-of-term charges.

However, if you want full ownership, HP is safer. If you prefer flexibility and lower monthly payments, PCP can be a good option. 

Can I terminate car finance early?

Yes, but there are usually early termination fees.

• With PCP or HP, ending the agreement before the term ends often means paying the remaining balance plus any charges.
• Some lenders allow voluntary termination after paying at least 50% of the total amount payable under the agreement, but check the terms carefully.

Always read the small print before signing, so you understand your options if circumstances change.

Does car finance cost more than paying cash?

Usually, yes. Finance includes interest and fees, so the total cost is often higher. But with 0% APR or dealer contributions, finance can sometimes work out close to cash. Paying cash avoids interest but ties up your money.

Final Verdict: Why Buy a Car on Finance

Car financing is ideal for those who are looking to purchase a car that they cannot afford outright. Many people in the UK get the advantage of car finance, and it’s an affordable way to get a newer and more reliable car without emptying your bank account. However, the decision is all yours, and you should check the interest rate, total cost, and early exit terms before signing.

For expert advice on buying and selling cars, visit our blog section.