Most of us aren’t able to save up for a car and have to rely on finance. The two most popular choices are personal loans and hire purchase agreements. While these popular methods have their advantages, they can also have their drawbacks such as high interest rates, high monthly payments and strict approval requirements. By considering alternative options, it may be possible to make car ownership more affordable or more accessible. Below are 5 alternative car finance solutions that could be worth considering. 

Consider PCP finance

PCP (Personal Contract Purchase) finance is an option that’s becoming increasingly popular. Just like traditional hire purchase finance, you pay in monthly installments over a set period of time (usually 2 or 3 years). However, these monthly payments are typically much lower than a hire purchase agreement. 

The catch is that if you want to keep your vehicle at the end of the contract period, you have to then pay a large balloon payment equal to the remaining value of the car. This is usually 30% to 50% of the initial value of the car. Alternatively, if you don’t want to/can’t pay the balloon payment, you can simply return the car. This could give you the option to take out a new PCP finance scheme on a different car. 

Until you pay the balloon payment, you do not own the car and you are technically leasing it. This means that modifications are restricted and you cannot sell the vehicle. You may also have mileage limitations and must report any damage or repairs to your PCP lender. 

Use a credit union

Credit unions are nonprofit organizations that allow members to borrow money at low interest rates. They can be a great alternative to a car loan from a bank or private lender.

The majority of credit unions are only open to people who live in a certain area or who are members of a certain community. Becoming a member isn’t always easy – some of them can have strict requirements and may not always be accepting members. That said, credit unions do try to help those in need and you may find that you’re able to negotiate loans with more flexible terms than through a traditional lender.

Look into peer-to-peer lending

Peer-to-peer lending is a form of lending made possible by the internet that involves borrowing money from everyday people around the world. Purpose-built peer-to-peer lending sites help connect borrowers with lenders. Lenders are able to make money on the funds they lend by charging interest to borrowers just like a bank or private lending company. However, you’ll find that many of these lenders offer much lower interest rates than traditional lenders. 

Some peer-to-peer lending sites are easier to find suitable lenders through than others. Just make sure that you don’t miss any loan repayments – lenders on these platforms may not be as sympathetic if you fall into arrears and could be quicker to take legal action than some traditional lenders. 

Ask your employer for a salary sacrifice

It may be possible to ask your employee to take out a car loan or lease for you. These payments can then be taken directly out of your salary. This is known as a salary sacrifice and can have several advantages. Firstly, an employer is able to apply for a loan on your behalf, which could be useful if you have a poor credit score. The money also comes directly out of your wages before you receive it, so there is no risk of missing payments. However, it does mean you’ll take home less money each month (although there are cases where a salary sacrifice could allow you to be placed on a lower tax rate – essentially allowing you to take home more money). 

There are guides online that can explain more as to how a salary sacrifice for employees works. It’s worth noting that an employer may also be willing to deduct other car-related costs from your salary such as car servicing, repairs and even fuel.

Borrow against your home

If you own your home and have a mortgage, you may be able to buy a car by remortgaging. There is also the option of using a home equity loan.

These loans can have low interest rates compared to traditional car loans. However, you should consider the fact that you will be using your home as collateral – fail to repay your loan and a lender may have authority to repossess your home. Therefore, you should only ever borrow against your home if you know you will be able to pay it back.