Ways to finance a new or used vehicle

If you’re wanting to buy a new or used vehicle then it’s best to have a plan for how you’re going to finance it before you start looking.

With a number of options available, things can get confusing. So to help we’ve summarised the different methods, so you can use the information to consider which is best for you.


The most cost effective way to fund a car, because you won’t have to pay any interest. However, you’d need to have the money put aside for the purchase.

Personal loan

You can get a personal loan from a bank, building society or finance provider that can be used to buy a car. The rates available to you may be influenced by your credit score, so it’s worth checking this prior to applying and where possible work to improve this. Normally you can spread the cost over one to seven years and it’s important to consider what you can comfortably afford to pay back each month. Also, do your research into what you’d be eligible for before an application. Noddle’s loan matcher lets you check which loans you could be accepted for without affecting your credit score. Find out now.

Hire purchase agreement (HP)

This is a way of buying a car on finance and the loan is secured against the car. Normally you’d pay a deposit of 10% then make fixed monthly payments over an agreed period. Until the last payment is paid, you won’t own the car. These are normally arranged by a car dealership.

Personal contract purchase (PCP)

This is similar to a HP agreement, but the monthly payments are normally lower. However, something to bear in mind is that overall the total amount you’ll end up paying may be higher when interest is considered. Instead of getting a loan for the full cost of the car, you get a loan for the difference between its price brand new and the predicted value of the car at the end of the hire agreement. This is done by forecasting the annual mileage used over the agreement. When you reach the end of the agreement you have a few options – you can either trade the car in and start again, give the car back and pay no extra costs, or pay a final payment (known as a balloon payment) of the resale price of the car and keep it.

Credit card

Using a credit card to pay for all or part of the cost of a new car will give you more protection if anything goes wrong. That’s as long as you pay more than £100 on a credit card and keep up with your monthly payments. Always remember to consider what you can comfortably afford to pay back before doing this though. The sooner you can pay the credit off the better, so even though there isn’t a set term for the credit (like a loan), the longer you take to pay things off the more interest will build up. If you’re happy you can afford to use this route, you can see which cards you may be eligible for through Noddle’s Card Matcher. Put in your requirements and see what you could be accepted for based on your credit score.

We hope you’ve found these useful. If you’re happy you know which options suits your situation the best, then check out our top tips for getting the best deal at a car dealership.