Car finance

What is car finance?

Car finance is a blanket term that covers the different ways you can buy a car without paying the full price upfront. It can make owning a car more affordable on a monthly basis by spreading the cost of your car across several years.

How car finance works

Whatever type of car finance you choose, you’ll borrow money from a lender to eventually own a new or used car. You can also take out a lease agreement on a car for a given period of time.

You’ll usually pay an initial deposit, and then fixed monthly repayments for the duration of your agreement. As part of your car finance contract, you’ll need to stick to certain rules. These may include servicing the car to its manufacturer’s schedule or yearly mileage limitations. Once you’ve paid what you owe, depending on the terms of your contract you’ll either own the car outright, pay a final lump sum to buy it, or return the car.

We’ve partnered with CarMoney to create a finance calculator that allows you to search a panel of finance providers and find the most suitable car loan for your needs.

HP and PCP representative example. If your borrow amount is £6,000 with a deposit of £1,000, a selected term of 48 months, at a representative APR of 17.9% (fixed) and an annual fixed rate of interest of 17.9%, you would pay £171.83 per month. Total charge for credit will be £2,247.84 and total amount payable is £9,247.84. This representative example is for illustration purposes only and some vehicles may not match the lenders criteria by age or mileage. CarMoney may still be able to offer an alternative option to help you purchase the vehicle. For full T&Cs please click here.

This calculator is for illustration purposes only. Your actual repayments could be lower or higher depending on your personal circumstances. The make, model and age of the car you’d like to purchase will also impact the final figure quoted.

Different types of car finance

Hire Purchase (HP)

HP finance allows you to spread the cost of your car purchase by making monthly payments over an agreed term. It could be right for you if you want to buy the car at the end of the agreement, without making a large final payment.

Learn more about HP finance

Personal Contract Purchase (PCP)

With PCP finance, you make equal monthly payments over an agreed term. At the end of the agreement, you can decide to hand the car back to the lender, change it for another one or buy the car with an ‘optional final payment’.

Learn more about PCP finance

Popular questions

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Applying for finance may affect your credit score. This is because the lender will run a hard credit check on your credit profile. Too many hard credit checks over a short period can affect your credit score for six months, which could reduce your ability to get approved for credit.

If you have a low credit score, you may not be accepted for car finance. The good news is that there are a number of things you can do to help to improve your score and likelihood of being accepted in the future:

  • Make sure you don’t have any missed regular payments, such as your mobile phone bill.
  • Avoid going over or close to your credit card limit.
  • Leave some time between applying for credit applications. Too many hard credit searches can affect your score.
  • Register on the electoral roll at your current address.

The better your credit score is, the more likely you are to be approved for car finance and to pay less interest overall.

If you’d like to learn more about improving your credit rating, visit CarMoney for more useful tips and information.

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