Financing a new or used car is available in different formats. In the UK, most people either opt for car dealer financing or finding a finance provider or lender. It is critical to understand how these two choices differ so that you can decide which route to take when you are ready to finance your next vehicle.

What is car dealership financing?

In a nutshell, car dealership financing means you go directly to the dealer to sign a financing agreement. The different schemes include hire purchase and personal contract purchase. These deals often come with a down payment, but there are times when a dealer will also offer no deposit car finance.

What is a car loan?

Taking out a car loan with a lender means you get a lump sum amount you can use to purchase the vehicle. Since you have more control over the amount you can spend, you can also shop around for the best car that suits your budget.

Interest rate comparison

It is vital to consider the interest rate because it will affect how much more you will pay over time. Dealerships have 0% rates available, but you need to keep in mind that a zero-interest rate might lead to higher monthly payments. Nonetheless, if you take time to shop, dealers offer the lowest rates on certain vehicles which could lead to a very attractive deal.

Car financing through a loan also gives you access to a broad range of interest rates. If you are willing to use your home as collateral, you may even get a better deal. But you are putting your home at a higher risk by securing a loan against it.

Benefits of financing a car with a dealership

Dealership financing is popular for a variety of reasons. First, it is convenient because the dealer handles all the paperwork. If you apply for car finance today, you might even drive off with a new car a few hours after. Another benefit of dealership financing is your option to negotiate the price. The options available are also more flexible, especially if you are not ready for a long-term commitment to own a car. For example, a PCP will allow you to own a car at low monthly payments and decide to buy or return the vehicle when the agreement ends.

Benefits of financing via a car loan

If you do not have good credit, applying for a loan with a lender may be your best chance to buy a car. Another advantage is that you own the vehicle at the end of the plan. Financing through a car loan also does not require a deposit, and you can pick the vendor you like.


Whether car dealership financing or applying for a car loan is a better choice depends on your circumstances. In car dealership financing, the biggest concern is the deposit. But some dealers offer no deposit deals if you are lucky. Finding a lender to finance your loan is best if you want more flexibility to shop around for a vendor. With either of these choices, you always need to consider the pros and cons before deciding which benefits you more.


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