How to pay for your car

Buying a new car can be an exciting but stressful experience. Once you’ve chosen the ideal car for you, it is then time to contact a reputable dealer – such as Perrys – and agree on a price.

However, there is a wide range of methods available for you to pay for the car, depending on personal preference and circumstances at the time. We’ve rounded up some of the options you have to pay for your new car.


Paying by cash is the easiest way to buy a car. Obviously cars can be an expensive purchase, and not everyone has a large amount of cash readily available to pay in one lump sum.

For those who do choose this method, the benefits are obvious. You pay for the car outright and own the car instantly. The buyer will also avoid interest on loans or leasing agreements and the car can be sold on at any point.

Be aware dealers could be less likely to haggle if you’re paying with cash though. Also, it may even be that in a high-interest account, the cash will earn more money than any interests on a loan payment, making it cheaper to buy the car with a loan.

Personal loan

A personal loan involves the buyer organising the loan with a bank or financial institution. The buyer will then pay the dealer and repay the bank or financial institution the money.

Dealers will treat this in the same way as the paying by cash option as they will not be supplying the finance for the car. Therefore they may be more reluctant to haggle.

Like paying with cash, the buyer owns the car from the start and can sell the car whenever they want.

Banks tend to offer competitive rates of interest as well, which could lead to a good deal for the buyer. Shop around for a low rate of APR and try to stay away from high interest institutions such as money lenders or pawnbrokers.

Credit Cards

It is possible to buy a car on a credit card, but it would only be recommended for short term purchases. The interest rates on a credit card can be very low initially – sometimes even 0 per cent – but once interest kicks in, it can be higher than that of a personal loan.

Credit cards can be used for deposits or if you are intending to pay for the car in full within a short period of time – usually within a year.

Hire purchase

The first dealer-led option we have included. It is also one of the most popular and effective ways to buy a car.

The hire purchase option involves borrowing the amount needed from a motor finance company, which will pay for the car. The buyer will then repay the money on a monthly basis. Once the car is fully paid for, the buyer will then own the car.

A hire purchase scheme can be advantageous because larger amounts can be borrowed than is possible with personal loans. It is easy to arrange and there are usually low deposits.

Dealers will also offer a choice of contract lengths and extras such as GAP insurance and Vehicle Replacement Cover.

However, if a payment is missed, the motor finance company can take back the car.

Personal contract purchase (PCP)

The personal contract purchase option consists of the dealer organising a loan for the buyer from a motor finance company. The buyer then pays the motor finance company a reduced monthly payment the car for a fixed period.

This payment will be the difference between the full loan and the deferred amount, plus interest. At the end of the agreement the buyer can pay off the deferred amount and keep the car, hand back the car or trade it in against another car.

This method involves lower deposits and monthly payments with a choice of options at the end of the agreement. However, the car is not owned outright.

Leasing or personal contract hire

Leasing a car involves paying a fixed rental amount to a motor finance company. This is set up by the dealer.

Usually all servicing and car maintenance is taken care of by the dealer as part of the arrangement.

At the end of the agreement, there is no option to buy and the car is handed back to the dealer. The benefits in leasing include very flexible terms and no depreciation risk on the car.

Many people will lease for the length of the warranty offered with the car, so if anything goes wrong, the driver is covered.