Car Finance Explained

By Burrows Motor Company​


Car finance may seem confusing so we have put together a simple guide that will help you to understand and decide which type of car finance is best suited for you. This is an important decision so you will need to know what options are available and that you 100% understand how they work.​ Before being able to pay for a car on finance: you must check your credit file before considering the options, you need to make sure that you can afford all of the agreed monthly payments and you must understand the type of car finance you are signing up to - make sure that any questions you have are answered before you go ahead with the contract.

Personal Contract Purchase (PCP)

A Personal Contract Purchase (PCP) usually lasts for 1-3 years. For this you will need to put down a deposit and its tends to have lower monthly payments than any other type of finance. You then have the following three choices:

  • Return the car to the dealer
  • Keep the car
  • Trade in the car against a replacement

Returning the car back to the dealer costs you nothing. Unless you have gone over the agreed mileage or have failed to return the car in a 'good' condition. In either of these cases there will be an excess to pay.

If you wish to keep the car, it means that you will need to pay a balloon payment, also known as the final payment. This amount is the car's guaranteed future value, or GFV, which is set at the start of the agreement.

Hire Purchase (HP)

​A Hire Purchase (HP) contract usually lasts for 2-5 years. Again you will need to put down a deposit but it tends to have higher monthly payments. At the end of your contract you will own the vehicle - this would be the most straight-forward options of finance available. The benefits of Hire Purchase (HP) are:

  • ​You are the owner of the car at the end of all payments
  • Flexible payments can be made to pay off the car before the agreed time
  • A lower deposit is required (although you can put down as much as you wish)
  • You can confidently and accurately monitor your mileage

The car is owned by the HP company until you make your final monthly payment and any 'option to purchase' ownership transfer fees have been paid. If you need to sell the car before the end of the agreement you will have to pay the outstanding amount first. 


We hope that you find our car finance guide helpful and useful. If you still have any questions or would like more information on what is available contact or pop into your local Burrows dealership.