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Things Your Parents Forgot to Teach You About Car Finance

Are you a first-time car buyer? You’re probably excited to head off to the dealership to check out your dream car 🤩 Maybe you have questions in mind about cars, like how to choose your first ride, how to pay for it, should you buy it with cash or should you get car finance... and loads more. Don’t worry because we’ll cover some of the key questions about buying a car in this article. Let’s begin!

Is it better to buy or finance a car?

If you have enough savings in the bank, you can definitely buy a car with cash. However, the downside of this is you’ll be spending most, if not all of your money on a big purchase like this. You need to set aside some cash for other car-related expenses like insurance, petrol, maintenance, and repairs, and of course for any other emergencies!

Car financing is a good option because the cost of the car will be spread over a certain number of months, usually from 12 months to 60 months. But you can of course use any cash you have available to pay a bigger deposit, and this will help you to get lower monthly payments. This way, you will have money left for other unplanned expenses along the way. 

What is the cheapest way to finance a car?

There are many cheap cars which can be financed to choose from. Picking a less expensive car is the surest way that you’ll spend less on your purchase. Another tip to keep in mind when looking for the most affordable car finance rates is to shop around for the best car finance deals from different lenders. 

You can check what your monthly payment amount might be by using our car finance calculator, before even applying for finance. This will give you an idea of how much money you need to set aside every month for your car finance repayment.

If you feel you’re not ready to make a financial commitment like financing a car, you can choose to lease one instead. It can be cheaper per month and you will still get to enjoy the benefits of having a car, but of course, you don't own it at the end of the lease period. And there will be a mileage cap to think about, and charges if you take it back damaged. 

How do I calculate interest on a car loan?

To calculate your car loan interest, you can get the results easily by using a car finance calculator. But if you want to do the computation yourself, the formula for the monthly car finance interest is Interest Rate multiplied by your loan balance or amount borrowed,  divided by 12 months. 

For example, if you have a £30,000 balance and your interest rate is 6%, multiply by 0.06, which is the interest in decimals, and divide by 12 months. The answer to this is £150. This is the amount for your monthly interest. But of course, that is just the interest - you need to add on the capital repayment element, so for example £30,000 over 60 months will be £500 per month. Check out our car finance calculator for a faster way to get the answer! 

Can you get a car payment deferred?

If you’re having trouble keeping up with your car finance repayments, the first thing you can do is to talk to the lender. There are lenders who’ll agree to deferred payments. You can ask the car finance company if this option is available to you.

Each lender has a different policy for deferred payments. Be sure that you understand the terms if you’re going to request this option. With Carmoola we offer options like a payment holiday - or change in repayments which is always good to know. And it's something you can apply for "in-app".

Can I give my car back to the finance company?

In cases where you think you can definitely no longer afford the monthly payments, you may choose to surrender the car to the car finance company before they repossess it. A voluntary repossession will lessen your financial burden. However, keep in mind that the payments won’t stop instantly. The lender still has to sell the vehicle, and the money they get from the sale will be deducted from the amount you still owe them. There’s usually a deficiency balance that you would still need to pay, and that will depend on how long you have had the car and how much you have already repaid.

Can you switch car finance?

The car finance agreement that you have with the lender is specifically tailored for your unique circumstance. Everything in the agreement is based on the information you submitted in your application, your financial situation, the car you’ve chosen to buy, and other factors. Therefore, it’s not possible to switch car finance because there will be a whole new set of factors that the lender has to consider. 

If you want to transfer the car finance agreement to another person or transfer it to another car, it won’t be possible, unfortunately. However, you may talk to your car finance company to see what your options are.

They will help you find the best way for your particular situation. What’s important is that you’re honest with your reasons and your intentions, then you can know that the lender will always be willing to help you. 

How do I calculate my final car loan payment?

If you get a Personal Contract Purchase (PCP) car finance, you need to prepare for a final payment called a "balloon payment" at the end of the contract. You would need to pay this off for the car to be yours.

A PCP car finance agreement has a cheaper monthly repayment amount compared to other car finance deals like a straightforward Hire Purchase (HP), where your payments will be to cover the full amount you borrow.  The balloon payment is optional because you can choose to return the car and not pay it. 

But if you do want to own the car, you can estimate the amount of the balloon payment by knowing the set percentage, say for example 30%, of the car finance principle sum. Check your contract because these details can be found there.

An easier way to go about it is to speak to your car finance company and ask them. This way, you will be sure of the exact amount and you can prepare for it when your contract ends. Of course, ALWAYS read the small print on any contract and make sure you understand your commitments.


Getting car finance has a lot of benefits. But before you sign a car finance agreement, be sure that you understand the financial commitment that you’re getting into. It’s crucial that you know your rights as a consumer and your responsibilities as a borrower. 

And if you're new to car financing and maybe don't have a long credit history then do check out our other blogs on this subject. It's not impossible for you to still get car finance.

Check out other car finance tips from Carmoola’s blog! And if you’re ready to make that big purchase, these car finance deals from Carmoola can help you drive a new car home. 🚗 Our application process is fully automated, simple and efficient, and it all takes place in-app, meaning you will have your response within minutes! Spread the cost of your car purchase and drive your car home today.

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