There are three common ways to buy a used car on finance in the UK: hire purchase (HP), personal contract purchase (PCP) and a personal loan. They differ in who owns the car while you pay, how much you pay each month and what happens at the end. This guide explains each one in plain terms, what the lender checks about you, and the one thing the finance won't check for you: the car's own history.
This is general information, not financial advice. For help choosing, the free, government-backed MoneyHelper service explains car finance in detail.
HP, PCP or a personal loan: the differences
| Hire purchase (HP) | PCP | Personal loan | |
|---|---|---|---|
| Who owns the car while you pay | The finance company | The finance company | You |
| Monthly payments | Higher: you pay off the whole price | Lower: part of the price is left to the end | Depend on the loan term |
| At the end | The car is yours after the last payment | Pay the final "balloon" to keep it, hand it back or part-exchange | The car is yours from day one |
| Mileage limit | No | Yes, with charges above it | No |
| Where you can use it | Mostly at dealers | Mostly at dealers | Anywhere, including private sales |
| Hand back early | Yes, once you've paid half the total (voluntary termination) | Yes, the same rule | No: you repay the loan |
Hire purchase (HP)
You usually pay a deposit, then fixed monthly payments over one to five years. The car is the finance company's until the final payment (sometimes with a small "option to purchase" fee), then it's yours. HP suits you if you want to own the car at the end and don't want mileage limits. Because the whole price is spread over the term, the monthly payments are higher than on a PCP for the same car.
Personal contract purchase (PCP)
With PCP, the finance company works out what the car will be worth at the end (the guaranteed future value) and you pay off the difference between the price and that value, plus interest. That makes the monthly payments lower. At the end you choose: pay the final balloon payment and keep the car, hand it back (within the mileage limit and in fair condition) or use any equity towards your next car. PCP suits drivers who change cars every few years and know their annual mileage.
Personal loan
A personal loan from a bank or building society isn't tied to the car: you get the money, buy the car outright and repay the loan. You own the car from day one, there's no mileage limit, and you can buy from anyone, including a private seller. The rate depends on your credit record, and it isn't secured on the car, so missing payments affects your credit, not the car.
Buying a car from a private seller on finance
Dealer finance (HP and PCP) is normally only available when you buy from a dealer. For a private sale, the usual routes are a personal loan, savings, or one of the few lenders that fund private sales by paying the seller directly once they've checked the car and the paperwork. Whichever you use, a private sale gives you fewer legal rights than a dealer sale, so the checks before you pay matter more (see your rights with a dealer or a private seller).
What the lender checks about you
- Soft search: eligibility checkers and quotes usually use a soft search, which other lenders can't see and which doesn't affect your credit score.
- Hard search: a full application leaves a mark on your credit file. Several in a short time can make lenders more cautious, so compare quotes before you apply.
- Affordability: your income, spending and existing credit, to check the payments are manageable.
- The APR: the representative APR in adverts is the rate at least 51% of accepted customers get; yours may be higher. Compare the total amount payable, not just the monthly payment.
- The lender: car finance providers and brokers must be authorised by the Financial Conduct Authority. You can check any firm on the FCA register.
What finance doesn't check: the car's own history
Your finance agreement covers the money, not the car's past. Before you sign anything or pay a deposit, check the car itself:
- Finance already on it. A car still owned by someone else's finance company can be taken back. Of the cars our customers checked in full between March 2023 and October 2026, 16.7% had finance recorded, and 56.7% of cars under three years old. An outstanding finance check shows it, with the lender and agreement type.
- Write-offs. 13.4% of the cars checked had an insurance write-off recorded. A write-off check shows the category, date and cause, and affects what the car is worth and costs to insure.
- Stolen and cloned cars. A stolen car check and comparing the VIN on the car with the report protect you from paying for a car that isn't the seller's to sell.
- Mileage. The MOT record shows every reading; a drop can mean clocking (see how to spot a clocked car).
A full car history check covers all of these in one report. If you're borrowing thousands to buy a car, it's the cheapest part of the deal and the one that stops you paying off a loan on a car you no longer have. Start with the free check: enter the registration in the search box to see the MOT history and DVLA details at once.
Buying a used car on finance FAQs
Is HP or PCP better for a used car?
HP suits you if you want to own the car at the end and drive a lot; PCP gives lower monthly payments and the choice to hand the car back, but has a mileage limit and a large final payment if you want to keep it.
Can I get finance to buy a car from a private seller?
Usually through a personal loan, as dealer finance normally only covers dealer sales. A few lenders fund private sales by paying the seller directly after checking the car.
Does applying for car finance affect my credit score?
Quotes and eligibility checks usually use a soft search, which doesn't. A full application uses a hard search, which shows on your credit file.
Who owns the car on HP or PCP?
The finance company, until you make the final payment. You can't sell it before the finance is settled (see selling a car with outstanding finance).
Can I end a car finance agreement early?
Yes. You can settle early at any time, usually paying less interest, or, once you've paid half the total amount payable on HP or PCP, hand the car back under voluntary termination.
Should I check a car's history if I'm buying on finance?
Yes. The lender checks you, not the car. A finance check on the car shows whether someone else's loan is still secured on it; the full report adds write-offs, stolen markers and mileage.