A car parked in front of a house

Best way to finance a car on a budget

December 21, 2021

AD | Featured

Looking for an affordable way to purchase your next car? Car finance could be right for you! There are a number of finance packages that are the most popular in the UK and you may be more suited to some forms of finance than others. But how can you decide which is right for you and keep costs low when you’re on a budget? Let’s take a look.

Personal loan

Personal loans can be the most straightforward way to borrow money and are usually provided by banks and building societies. Personal loans can be used for anything you want, you would apply for how much you would need for your chosen car and if accepted, have the money deposited into your bank account. You will then make monthly repayments to a fixed-term with added interest. If you have a good credit score you can benefit from low rate car finance and monthly payments. If you have a low credit score you may struggle to get approved for a personal loan.

Best way to finance a car on a budget
A wheel of a car

Benefits of a personal loan:

  • Own the car from the start and sell it when you want
  • More flexible as the loan is not secured against the car
  • One of the cheaper option available in terms of total cost
  • Can be used to cover the full cost or part of the car cost
  • Usually, low fixed rate of interest

Hire Purchase car loan

A hire purchase car finance deal is a secured loan that allows you to spread the cost of your chosen car. Monthly payments can sometimes be higher as it covers the full cost of the car and there is no final payment at the end. You make fixed monthly payments over a number of years, with added interest and then own the car at the end. The loan is secured against the car which means if you fail to meet your repayment deadlines the lender has the right to take the car off you. 

Benefits of a hire purchase loan:

  • Low deposit or no deposit available 
  • Competitive fixed rates
  • Own the car at the end of the agreement
  • No mileage restrictions or charges
  • Can be available for people with less than perfect credit 
  • Fixed monthly payments 
Best way to finance a car on a budget
A car parked in a parking lot

Personal Contract Purchase (PCP)

Personal Contract Purchase is similar to hire purchase, but it usually has lower monthly payments and there are more options at the end of the agreement. A PCP deal usually has lower monthly payments as it only covers part of the car cost. You make monthly payments till the end of the term with added interest.

At the end of the agreement, you have 3 options. You can either hand the car back to the dealer and the agreement has ended, pay the final balloon payment and keep the car or use the value as part exchange on another car. Mileage limits will also be agreed upon at the beginning of the agreement and the car must be returned in good condition. If not, you could face additional charges when you hand the car back. 

Benefits of PCP

  • Low monthly payments
  • No deposit or low deposit required 
  • More choice at the end of the agreement
  • Can be available to people with low credit scores

Do you have to get finance from a dealer? 

Dealer financing can be easy to sort there and then but you may not be getting the best deal possible. Car dealers usually only have access to a number of lenders and finance packages. It’s recommended that you shop around for the best deal possible and consider a number of cars before you make a decision.

As mentioned, you can obtain a personal loan from a bank or building society and you can also sort hire purchase and PCP deals through a car finance broker. Car finance brokers handle your finance application for you and send it to a range of different finance lenders. They help you get the best deal and then you can get a car from any dealership in the UK which is FCA approved. 

Best way to finance a car on a budget
A car parked on the side of a road

Do you have to have good credit for car finance?

We mentioned above that personal loans may be more suited to people with good credit and PCP and hire purchase can be more accommodating to those with lower credit scores. It can be possible to get a car loan with bad credit, but it can be more beneficial to improve your credit score first either way. Having a better credit score usually means you have more chances of getting approved for finance and also gives you access to better rates. 

Award-winning family lifestyle and top 10 UK parenting/mum blog. Join Boo Roo and Tigger Too sharing family life, home decor, travel and everything in between. Read More

Subscribe & Follow

Amazon Associates Programme

Boo Roo and Tigger Too is a participant in the Amazon EU Associates Programme, an affiliate advertising programme designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.co.uk.

Vuelio Top 10 UK Mum Blog (#9) 2024

Vuelio Top 10 UK Mum Blog (#9) 2023

Vuelio Top 20 UK Parenting Blog (#15) 2023


  • Vuelio Top 20 UK Parenting Blog 2022
    Vuelio Top 20 UK Parenting Blog 2022 (#11)
Wicked Uncle Blogger Network Badge 2023