Is Car Finance Still Worth It in 2026? PCP vs Leasing vs Buying

HP, PCH and PCP car finance options have long offered an affordable way for people to get behind the wheel of a car - especially if they don't have the money available to purchase outright. As we move further into 2026, how do the different car finance possibilities stack up?

Thinking about getting a new car? If so, you’ll need to think about how you’re going to pay for it.

As we move further into 2026, there are several different ways to cover the cost of your new set of wheels. You can get a car on PCP (Personal Contract Purchase), lease it (including PCH - Personal Contract Hire), or buy outright.

In this article we’ll discuss the pros and cons of each. But it’s worth bearing in mind that there’s no ultimate ‘best’ option; the most suitable approach depends on what you want from your day-to-day driving experience, and your personal financial situation (with all the budgetary constraints that might entail).

PCP car finance - Pros and cons

PCP (Personal Contract Purchase) is essentially a loan for a car, which you either give back or make a balloon payment and keep at the term’s end, or trade in for a new model.

PCP car deals have become a dominant form of leasing. When you arrange PCP car finance, you pay an upfront deposit, then make monthly payments for the period of the deal, usually 2 to 4 years.

When the term of the contract has finished, you either hand the car back, make a final balloon payment (GMVF - Guaranteed Minimum Future Value), or trade the car in for a new one, under another PCP agreement.

Generally, people choose to get a car on PCP in preference to HP (Hire Purchase). This is because repayments are higher with HP, and you get lumbered with the downsides of long-term ownership such as depreciation. PCP, meanwhile, is cheaper and more flexible.

Note that mileage limits are almost always applied for Personal Contract Purchase deals.

PCH (Personal Contract Hire) leasing - Pros and cons

With PCH you lease a new car, then give it back at the term’s end. There's usually no contractual option to buy.

PCH is a deal where you get to lease a vehicle  - usually a new one. Monthly repayments are generally lower than with PCP, because with PCH, you are only paying for the depreciation.

Most deals don’t give you the option to buy the car-lease car outright when the term ends, but you can ask if this is a possibility when the time comes. Generally, however, people give the vehicle back and arrange another car on a PCP deal invariably for a newer model. This way, they get to drive a new car every couple of years or every few years which is important for some drivers.

Note that, like PCP, mileage limits are almost always applied for PCH deals.

Buying Outright

When you buy outright you don’t have to worry about any mileage restrictions, and no other entity will have an interest in it (unless a loan is secured on it).

In some ways this is the simplest way to get behind the wheel of a new (or used) car. If you have the savings available, you simply make the transfer, complete the documents, and drive off the forecourt (or perhaps driveway, if you’re buying second hand).

If you don’t have the money readily available, you might take out a car loan. This could be a good option if you can get a low interest rate, but this will depend on your credit score, income and other factors.

Loans are either secured or unsecured. A secured loan for a car is normally secured against the car itself, so if you fail to make repayments, the lender can repossess the vehicle.

An unsecured car loan is really just a personal unsecured loan that you use to buy a car. The lender will rely on your creditworthiness when deciding to give you the loan or not.

When you buy a car outright, the car is yours and no other entity has a claim on it. You can modify it as you wish, sell it, or just keep it. You won’t have to worry about APR, fees, or balloon payments. Also, you won’t have to deal with any restrictions (as you might with PCH or PCP car deals), commonly relating to mileage.

Buying outright is also a good option if you’re not the sort of person who wants to drive around in a newer model every couple of years.

One of the downsides to buying outright is that you’ll bear the cost of depreciation; a new car might easily be worth half its original value after three years.

However, even when you factor in depreciation, buying outright is often the cheapest option overall - i.e. the total cost of ownership is lower than going with car finance options like PCP or PCH. This is especially true if you want to keep the car for the long term, or buy a nearly-new/used vehicle.

Car finance option vs buying outright compared

0% car finance deals: What are they?

Some manufacturers offer 0% car finance deals, where the APR is set to zero for the lifetime of the contract. These are often PCP car deals on brand new or outgoing models with a view to boosting demand. While they can be enticing, they can come with shorter terms, and some commentators argue that prices can be inflated somewhat (which might cover any losses from the zero-percent offer).

Since 0% car finance is usually on PCP, you’ll need to be aware of mileage limits and any fees associated with the return condition.

So, is car finance still worth considering in 2026?

Yes. For many people, buying a car on finance makes sense. However, whether or not it makes sense for you will depend on your financial situation, and what you want from a vehicle.

A large proportion of UK drivers use finance to get behind the wheel of their next vehicle. Indeed, car finance was projected to grow by 6% in 2025, cementing its position as the second most common form of finance (behind mortgages).

On a side-note, it’s plausible that the increasing interest in car finance is related to higher cost of Evs as electric vehicles cost between £5,000 - £15,000 more than comparable combustion-engine models.

Car finance offers flexibility and can help with cash flow

Even though buying outright with savings could well be the cheapest option long-term, people want the flexibility and affordability of car finance. Besides this, many people simply don’t have the cash readily available to buy a car outright - in the same way they rarely have sufficient funds to buy a house.

However, interest rates and fees are a big factor. Typical APRs for a car on finance in the UK in 2025 - 26 are roughly 6% - 9% for good credit, rising to between 10 - 19% if credit is average or poor.

The bottom line on car finance

Ultimately, if you don’t have enough money to buy a car outright, want to change your car every few years, control cash flow with lower monthly payments, and have a good credit score, then car finance can make a lot of sense.

If you’re unsure if you can afford a particular deal, you can use a car finance calculator to work out the numbers. Autotrader and Compare the Market both provide popular finance calculator tools.

But make sure you understand what you are signing

It’s critical you understand the small print of any HP, PCH, or PCP car deal you sign. Recent scandals over the historic miss-selling of car finance deals, and the compensation schemes that have resulted, underline how important it is to understand what you are agreeing to.

Additionally, you should be clear on any restrictions particularly those relating to mileage as exceeding limits can result in additional fees, which can be substantial. You should also make sure you understand the details of any balloon payments.