Car finance made simple

Business woman with a car bought on car finance
Car finance: spreading the cost of car purchase

CAR finance is a way to fund the acquisition of your new company car or business car by spreading the cost over an agreed number of years – rather than paying the full amount all at once.

The difference between using car finance as opposed to car leasing is that with car finance you end up owning the car; with leasing you never own the car.

Your agreement will be with the car finance company that buys the car on your behalf; you then repay the amount, with interest added, until you own the car by paying off the finance.

Hire purchase

Hire purchase or HP is a simple and straightforward way to acquire a new car. The costs are fixed, you pay a monthly amount and at the end of the loan period ownership of the car transfers to you. Click here for more on hire purchase.

Lease purchase

Very similar to HP, but instead of paying a set amount that pays off the car fully at the end of the term, a sum is deferred – called a ‘balloon’ payment. This makes the monthly payments lower, but payment of this balloon must be paid to own the car at the end of the term. Click here for more on lease purchase.

Personal contract purchase

Personal contract purchase – a PCP – is an extremely flexible way to purchase a car. It’s like HP, except there is a sum deferred to the end of the agreement which is the guaranteed value of the car. At this point you can trade in the car for a new car and new finance agreement, simply hand back the vehicle to the dealer, or pay the deferred amount and keep the car. Click here for more on personal contract purchase.

Capital allowances

Capital allowances are ways of writing down the cost of a vehicle for both businesses and the self-employed. The capital allowances are set against your taxable income and recognise the depreciating nature of the asset you own. Lower emission models receive enhanced capital allowances. Click her for more on capital allowances.

Other types of car acquisition

If you don’t want to own a car there are other methods of running a car known as leasing – such as contract hire and personal contract hire. If you want to know more about these methods, visit our Car leasing made simple page.