Every Loan › Buy now, pay later and car finance
Buy now, pay later and car finance
Buy now, pay later and car finance both let you spread the cost of something you want today. They work very differently, and the small print matters.
Buy now, pay later (BNPL)
BNPL is usually offered at online or in-store checkouts. Common structures are paying in three instalments, or paying the whole sum after a set time (such as 30 days). Many are interest-free if you pay on time, but late fees may apply and some longer-term plans carry interest.
Points worth knowing:
- It is still borrowing, even when it feels like a small payment.
- Late payments can lead to fees and may be recorded on your credit file.
- Several small plans at once can add up quickly.
- Returning an item may not instantly cancel your repayments, so check the return terms.
Whether a BNPL plan is covered by the Consumer Credit Act depends on its terms. Citizens Advice says "buy now pay later" agreements are usually covered, but short interest-free schemes have been treated differently in the past, and the government has been bringing BNPL under FCA regulation. Check your agreement, ask the provider and look at the FCA's consumer pages for the current position.
Hire purchase (HP)
With HP, you usually pay a deposit and then fixed monthly payments. You do not own the car until the final payment (sometimes a small "option to purchase" fee). The total cost is shown as the total amount payable.
Personal contract purchase (PCP)
With PCP, you pay a deposit and monthly payments that are lower than HP because you are paying off only part of the car's value. At the end you can:
- Pay the final "balloon" payment (guaranteed future value) and keep the car.
- Hand the car back, if you have kept within the mileage and condition limits.
- Part-exchange, using any equity towards another car.
Extra mileage charges and damage fees can be significant, so read the mileage allowance carefully.
Voluntary termination
Under the Consumer Credit Act, with a regulated HP or PCP agreement you generally have the right to end the agreement and return the car once you have paid half of the total amount payable (including deposit), provided you have looked after it and met any arrears. Check section 99 of the Act and your agreement.
Check before you sign
- The total amount payable and the APR.
- Whether the broker or dealer receives commission, and how it affects your rate.
- The firm is FCA authorised (how to check).
- The mileage, fees and what happens if you stop paying (the car can be repossessed).
The FCA has also been dealing with historic commission arrangements in motor finance, so check its pages if you had a car finance agreement in the past.
If you have a problem
Complain to the firm, then the Financial Ombudsman Service (your rights). If you cannot keep up payments, speak to the lender and see free debt help.
Questions worth asking at the checkout or showroom
- What happens if I miss a payment: is there a fee, and is it reported to a credit reference agency?
- Who is the lender, and are they authorised by the FCA?
- What is the total I will pay compared with the cash price?
- For car finance, what mileage and condition limits apply, and what are the charges if I go over?
Take your time. A genuine offer will still be there tomorrow, and a deal that needs an instant decision is a reason for caution.
This is general information, not financial advice. We're not a lender or broker and don't arrange credit.
Frequently asked questions
Is buy now pay later regulated?
It depends on the product, and the rules have been changing. Check your agreement, ask the provider and look at the FCA website for the current position.
What is the difference between HP and PCP?
HP pays off the whole car and you own it at the end. PCP has lower payments and a final balloon payment if you want to keep the car.
Can I hand a financed car back?
Under voluntary termination, you generally can once half of the total amount payable has been paid, subject to conditions.