To Finance or Not to Finance ?

To Finance or Not to Finance ?

You may be at a stage in life where you’re thinking about buying your first car or changing the one you currently own. This is one of the biggest purchases we make and the most frequently asked question is whether to save up and pay cash or use finance.

In this article we’ll look at the option of using finance and the pro’s and cons that come with it.


  • The biggest advantage of buying a car on finance is that you don’t need to have all of the cash up front.
  • You can pay a small deposit and agree a payment plan usually between 2-5 years.
  • Personal Contract Purchase; PCP is where you are in a sort of long term contract, where you put down a deposit and pay monthly. The contract is usually around three to five years long. At the end of the contract, you can either return the car (in a good condition), pay the difference to keep the car, or exchange the car. You may find that the monthly repayments are lower on PCP as opposed to HP.
  • Hire purchase; HP is where you put down a deposit and pay in monthly installments. Unlike PCP, the car is yours and you will not need to return or exchange the car. With Hire Purchase, you are still in a contract and will need to abide by the repayment terms.
  • Some finance offers will also include allowances for fuel, maintenance, service, MOT and general repairs. Therefore reducing the amount of money you have to personally spend to keep the car at its best.


  • The monthly finance payments might seem manageable on its own, but once you add petrol, insurance & maintenance (sometimes parking permits) you can end up spending a lot more than what your budget allows.
  • These commitments are usually 2-5 years long, so a negative change in your financial circumstances could have an impact on making payments.
  • Not being able to make repayments on time, or in full, could result in; your credit score being negatively impacted, legal action being taken against you or even repossession of the car.
  • Cars will depreciate quicker than the money you owe on finance. Cars are widely known to lose value the moment you drive away from the showroom. This often leads to ‘Negative Equity’ which means that if you try to terminate your contract before it ends, you’ll usually have to pay a large sum of money to make up the shortfall.

Before taking out a car on finance, here are few things to consider

  • Will your credit score and history allow you to borrow?
  • Are you able to manage your money well?
  • Are you being viciously overcharged?
  • Can you afford the upkeep of the car?
  • Can you afford the insurance?

Buying a car is a big financial decision so careful consideration should be taken. It may seem like a good idea at the time but remember the long term financial commitment.

Author- Nikkita Tew

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