Find a dealer
The AA
The AA
  • Used Cars
    Back Used Cars
    • Browse by Manufacturer
      Back Browse by Manufacturer
      • Audi
      • BMW
      • Citroen
      • Ford
      • Hyundai
      • Jaguar
      • Kia
      • Land Rover
      • Mercedes
      • MINI
      • Nissan
      • Peugeot
      • Porsche
      • Renault
      • Skoda
      • Toyota
      • Vauxhall
      • Volkswagen
      • Volvo
      • Browse by manufacturer
      • Search all used cars
    • Browse by Model
      Back Browse by Model
      • Audi A1
      • Audi A3
      • Audi Q5
      • BMW 3 Series
      • Fiat 500
      • Ford Fiesta
      • Ford Focus
      • Ford Kuga
      • Kia Sportage
      • Mercedes A Class
      • Mercedes C Class
      • MINI Hatch
      • Nissan Juke
      • Nissan Qashqai
      • Peugeot 208
      • Range Rover Evoque
      • Toyota Yaris
      • Vauxhall Astra
      • Vauxhall Corsa
      • Vauxhall Mokka
      • Volkswagen Golf
      • Volkswagen Polo
      • Volkswagen Tiguan
      • Search all used cars
    • Browse by Location
      Back Browse by Location
      • Birmingham
      • Bristol
      • Cardiff
      • Doncaster
      • Edinburgh
      • Glasgow
      • Hull
      • Leeds
      • Leicester
      • Liverpool
      • London
      • Manchester
      • Newcastle
      • Norwich
      • Nottingham
      • Portsmouth
      • Reading
      • Sheffield
      • Southampton
      • Swindon
      • All locations
    • Browse by Body style
      Back Browse by Body style
      • SUVs
      • 7 Seaters
      • Sports cars
      • 4x4
      • Estates
      • Hatchbacks
      • Motorhomes
      • Family cars
      • Convertibles
      • Coupes
      • Saloons
      • Luxury cars
      • People carriers
      • City cars
      • Superminis
      • Supercars
      • Executive cars
      • All bodystyles
    • Browse by Fuel type
      Back Browse by Fuel type
      • Used diesel cars
      • Used electric cars
      • Used hybrid cars
      • Used petrol cars
    • Browse by Transmission
      Back Browse by Transmission
      • Used automatic cars
      • Used manual cars
    • Browse by Maximum price
      Back Browse by Maximum price
      • Used cars under £30,000
      • Used cars under £20,000
      • Used cars under £15,000
      • Used cars under £10,000
      • Used cars under £5,000
      • Used cars under £4,000
      • Used cars under £3,000
      • Used cars under £2,000
      • Used cars under £1,000
    • Buying advice
      Back Buying advice
      • Best used 4x4 cars
      • Best used 7-seater cars
      • Best used electric cars
      • Best used estate cars
      • Best used family cars
      • Best used first cars
      • Best used fuel efficient cars
      • Best used hybrid cars
      • Best used second-hand cars
      • Best used small cars
      • Best used sports cars
      • Best used SUV cars
    • Car checks and delivery
      Back Car checks and delivery
      • Used vehicle inspection
      • Car history check
      • Vehicle delivery
  • Used Vans
    Back Used Vans
    • Browse by Manufacturer
      Back Browse by Manufacturer
      • Citroen
      • Fiat
      • Ford
      • Isuzu
      • Iveco
      • Mercedes
      • Mitsubishi
      • Nissan
      • Peugeot
      • Renault
      • Toyota
      • Vauxhall
      • Volkswagen
      • Search all used vans
    • Browse by Model
      Back Browse by Model
      • Citroen Dispatch
      • Citroen Relay
      • Ford Ranger
      • Ford Transit
      • Ford Transit Connect
      • Mercedes Sprinter
      • Mercedes Vito
      • Mitsubishi l200
      • Nissan Navara
      • Peugeot Boxer
      • Peugeot Expert
      • Peugeot Partner
      • Renault Kangoo
      • Renault Trafic
      • Toyota Hi Lux
      • Vauxhall Combo
      • Vauxhall Movano
      • Vauxhall Vivaro
      • Volkswagen Caddy
      • Volkswagen Crafter
      • Volkswagen Transporter
      • Search all used vans
    • Van checks and delivery
      Back Van checks and delivery
      • Used vehicle inspection
      • Van history check
      • Vehicle delivery
  • Finance
    Back Finance
    • Car finance
    • Car finance calculator
    • Eligibility checker
    • Car finance explained
    • PCP car finance
    • HP car finance
    • Car loans
  • Leasing
    Back Leasing
    • Car leasing
      Back Car leasing
      • All car leasing
        • Search by make
        • Fiat
        • Hyundai
        • Nissan
        • Skoda
        • Vauxhall
        • Volkswagen
        • Search by type
        • Electric
        • Hybrid
        • Automatic
        • SUV
        • Hatchback
        • Estate
        • Search by price
        • Under £300
        • £300 - £400
        • £400 - £500
        • Above £500
    • Van leasing
      Back Van leasing
      • All van leasing
        • Search by make
        • Ford
        • Mercedes
        • Nissan
        • Peugeot
        • Renault
        • Volkswagen
        • Search by type
        • Luton vans
        • Crew vans
        • Pick-up vans
        • Tipper vans
        • Dropside vans
        • High-roof vans
        • Search by price
        • Under £300
        • £300 - £400
        • £400 - £500
        • Above £500
    • Business leasing
      Back Business leasing
      • All business leasing
    • Help and guides
      Back Help and guides
        • Leasing guides
        • How AA Lease works
        • What is a car lease
        • Pros and cons of leasing
        • Common lease misbeliefs
        • Returning your lease vehicle
        • View all leasing guides
        • Help
        • FAQs
        • Contact us
  • Sell
    Back Sell
    • Sell my car
    • Sell my van
    • Value my car
  • Aftercare
    Back Aftercare
    • Car warranty
    • Breakdown cover
    • Car insurance
    • Car servicing
    • MOT
    • Car smart care
  • Advice
    Back Advice
    • Buying a used car online
    • Car reviews
    • Buyers guides
    • Best cars
    • Driving advice
  • Your account
  • Find a dealer

Car finance explained

Everything you need to know about the wonderful world of car finance

Car finance can seem daunting and confusing. To take some of the stress out of buying a car, we want to explain the finance options and what each of them really means.

What is a car finance agreement?

If you buy a car using finance, there’s a credit agreement between you and the lender. This allows you to pay for the car over a period of time, with interest payable on the loan balance. This is what’s called a car finance agreement.

I want to buy a car – what are the different types of finance options available to me?

Whether you’re buying new or used, a car is a significant purchase. You can, of course, buy your next car outright if you’re lucky enough to have the funds available, but most people need to rely on a finance option. There are four main types of car finance available:

  • Hire purchase (HP)

    This is similar to PCP, in that a deposit is required, and there are fixed monthly payments. The car is owned by the HP company, and you are essentially only hiring it until you make the final payment. After this time, you own the car. Hire purchase is the only finance option offered by AA Car Finance.

    Find out more or apply
  • Personal loan

    One of the most popular ways to finance a new car. This involves borrowing money to fund the purchase, often from a bank or building society. When you buy the car, you instantly own the car. You then pay the loan back to the lender, with interest on top, over a time period to suit you. The amount of interest varies from lender to lender and usually depends on the duration of the loan, as well as your personal circumstances and credit score. This option is particularly good if you’re in it for the long haul and don’t intend to change cars very often.

    Find out more or apply
  • Personal contract purchase (PCP)

    Here, you pay a deposit (usually around 10%) and then have fixed monthly repayments. During the contract, the car belongs to the finance company and your payments only cover depreciation. This type of car finance is ideal if you’d like flexibility at the end of the agreement, and also suits those who like to change and update cars fairly regularly. Once your contract ends, you have three options:

    1. Pay the remaining value of the car (often called a balloon payment) and keep the car
    2. Exchange the car
    3. Return the car to the supplier
    Find out more
  • Leasing

    When you lease a car you’re essentially renting it, so you’ll never own it. You don't have the option to buy the car at the end of the contract. However, every two to three years you can change the car you’re driving. This is a great way to drive cars you couldn’t usually afford to buy. The payments you make are like a hire fee – they simply cover the car’s depreciation.

    Find out more

Not sure what finance is right for you?

Require initial deposit

Hire Purchase

Usually requires deposit

Personal Contract Purchase

Usually requires deposit

Personal Loan

cross

Leasing

Usually requires deposit

You own the car outright on Day 1

Hire Purchase

cross

Personal Contract Purchase

cross

Personal Loan

tick

Leasing

cross

Car is yours at the end of agreement

Hire Purchase

tick

Personal Contract Purchase

Optional

Personal Loan

tick

Leasing

cross

Optional final (balloon) payment

Hire Purchase

cross

Personal Contract Purchase

tick

Personal Loan

cross

Leasing

cross

Fixed monthly payments

Hire Purchase

tick

Personal Contract Purchase

tick

Personal Loan

tick

Leasing

tick

Excess mileage charge

Hire Purchase

cross

Personal Contract Purchase

tick

Personal Loan

cross

Leasing

tick

Secured against an asset

Hire Purchase

tick

Personal Contract Purchase

tick

Personal Loan

cross

Leasing

tick

Hire Purchase

Personal Contract Purchase

Personal Loan

Leasing

Require initial deposit

Usually requires deposit

Usually requires deposit

cross

Usually requires deposit

You own the car outright on Day 1

cross

cross

tick

cross

Car is yours at the end of agreement

tick

Optional

tick

cross

Optional final (balloon) payment

cross

tick

cross

cross

Fixed monthly payments

tick

tick

tick

tick

Excess mileage charge

cross

tick

cross

tick

Secured against an asset

tick

tick

cross

tick

What’s the best car finance option for me?

If you’re looking at using finance to buy a car, first think about the type of deal you want. These include personal loan, lease, hire purchase and PCP. Once you’ve decided on the type, you need to choose a lender that offers the best deal for your needs. AA Car Finance only offers hire purchase.

AA Car Finance FAQs

Connect with us

Facebook X YouTube LinkedIn
For customers
  • Customer terms & conditions
  • Our dealers
  • Motoring advice
  • Electric cars
  • New cars
  • Car delivery
  • Why AA Cars
  • Customer data request form
For dealers
  • Car dealer terms & conditions
  • AA Cars Standards code (trade)
  • Advertise with us
Other
  • Contact us
  • About us
  • Privacy notice
  • Cookie policy
  • Sitemap
Vehicle Inspections

The AA recommends an AA Cars Vehicle Inspection before purchase. Not all cars are mechanically checked by the AA.

  • Vehicle Inspection
  • theAA.com
© AA Cars 2025  | Company No. 4546950  |  VAT No. 188 0311 10