Car Finance for Complete Beginners

One of the milestones of adult life is finally having major purchases under your name and using your hard-earned money. 😃 As an adult, some assets may need financing, such as buying a car. And when you do, it is imperative that you do things right. That’s why it’s helpful to learn as much as you can about car finance before you embark on this exciting journey.

We get it, finding cheap car finance deals for new or first time drivers can be hard. As fun as shopping for cars can be, you need to be wise and practical about your budget, and then you have all the hidden costs that a lot of companies are adding on as well. This is where you can take advantage of car finance. As you make your way to buying that first car, you can choose from various car finance deals from different car finance companies in the UK to help you in reaching that goal.

If you want a new car, but you’re on a limited budget, and are looking for the best car finance deals for new drivers, and have no idea what to do to make that purchase, then read on. And we have a great video for all of you new to car finance - let Jade give you some helpful tips 


Car Finance Explained

Some buyers prefer, or mostly need, to finance a car rather than buying it outright with cash. Since buying a car is a big purchase, car finance makes it more affordable to buyers because they can pay for the car through smaller monthly instalments. Essentially, the car finance company will be the one to pay for the car you want, and then you will pay the lender back every month, over an agreed period of time 

Until you have completed all of the payments, the owner of the vehicle would be the car finance company. But once you’ve paid everything off, then the ownership of the car will usually be transferred to you. During the time that you’re still paying for it, you can use the car fully. When it’s finally yours, you can choose to keep it, sell it, or trade it in.

Types of Car Finance

There are two main types of car finance options in the UK. You can choose Hire Purchase or Personal Contract Purchase. With these two types of car finance, the payments are spread over a certain period. You have to pay a fixed amount every month. 

HP has a slightly higher monthly repayment amount than PCP, but after all the payments are made, the car is yours. PCP is more affordable but you need to make an optional final "balloon" payment if you want to own the car. Otherwise, you can simply return it. We have outlined some of the major differences below, but we do have a full article comparing PCP & HP finance deals too.

Personal Contract Purchase

With PCP, you only borrow a proportion of the cost of the car. You'll usually pay a deposit and agree to fixed monthly repayments over a set period of time (usually 2 or 3 years), which are calculated based on the 'Guaranteed Minimum Future Value' of the car at the end of the contract. Once the contract comes to an end, you can choose to pay the GMFV (often referred to as a balloon payment), or you can hand the car back. Because you are not paying the full cost of the car purely with the instalments, then these monthly payments will be lower than with an HP over the same term. 

Hire Purchase

For many, an HP agreement is more simple. It‘s like a traditional loan, and you'll pay back the total cost of the car over a set period of time (this can be from 1 to 5 years, or sometimes longer). It’s a bit like a mortgage on a house, in that you pay a deposit and then make monthly payments until the loan is paid off. At the end of the term, the car is officially yours without the need for a final payment. Lenders usually charge an admin fee for this - Carmoola charges just £1.

Who Can Get Car Finance in the UK?

So, we now know the types of car finance. But who can get car finance in the UK? Well, to get car finance in the UK, for starters, you must be at least aged 18 and a UK resident. After that, the lender will look at your credit score and confirm you are able to afford the monthly repayments. Car finance companies look into applicants’ credit reports to understand their spending behaviour as well as whether they make timely payments on their loans. Before you get car finance, it’s best to know what a credit report & score is and understand how it can affect your car loan.

What is a Credit Report?

Your credit report is a summary of how you have handled your credit including your payment history and your accounts that are currently open. Your credit score is based on your credit report, and car finance companies look into your report when you apply for car finance. The kind of data they are looking for is whether you have borrowed in the past and whether you have paid all your debts back on time. They also want to see that all your information is up to date and matches.

What is a Credit Score?

If the idea of credit score is new to you, it is basically your rating given by different companies (such as Experian, Equifax or TransUnion) based on your financial history. You can check out your own credit score and this is a good idea before you actually apply for credit. You will see what your score is and check out any discrepancies on your account. 

A credit score is given in by different companies sometimes in various ways, but the most common is through numerical scoring from 0 to 850, the latter being the highest. The essence of a credit score is it rates your eligibility and assesses how great the risk will be for finance companies who loan you money. 

Credit score ratings are divided into five categories - excellent, good, fair, poor, and bad. The highest rating you can get is, of course, excellent. If you belong in this category, it means that you have an impeccable record. 

As a beginner, you can not expect that you’ll be given this rating right away, especially if you don’t have a credit history yet. So if this is you, it helps to ensure you are registered on the electoral roll, and it's a good idea to take out a credit card and pay that back regularly and on time. Then if you repay your future transactions on time every time, it will help your credit score immensely.

Will I Get Accepted for Car Finance?

Your credit score has a crucial role if you’re applying for car finance. Having an excellent score will increase the chances of your application getting approved and may well mean you will be offered a lower rate of interest.  So, to prepare for your car finance application, understand how different credit rating agencies give scores, check what your score is, and look for ways to improve it.

To find out about your credit score, you will have to request a copy of it from any of the three principal credit reference companies. Experian, TransUnion, and Equifax are credit reference agencies with different scoring criteria. And since your score may differ between these agencies, it is preferable to ask for a report from each of them to get an accurate rating.

Improving Your Credit Score

If you have already accessed your credit report, have checked your information is correct,  and have seen your score, the next important step is trying to improve it. There are numerous ways you can do this. For young adults, you can start by registering on the electoral roll if you haven't already. This helps to confirm your address., and having your name on the list is additional proof of your identification. You can go to and find out how you can register to vote by post or online.

Next is to double-check your file for any errors. Even a seemingly minor mistake on your file, like an incomplete or missing address, can significantly affect your score. Even worse is an instance of fraud so check all those applications for credit were actually you! So, look over your file carefully and make sure that you didn’t miss any discrepancies or errors. It's important to immediately report this to the credit reference agency if you notice inaccurate information on your file, and have it corrected. 

When it comes to credit, it is important to remember that it is not only your record that is being scrutinised but those who are linked to you financially. A spouse, family member, or friend you have a joint account with can affect your rating. If a credit rating linked to yours happens to be poor, it can influence your score.

Another easy way to improve your credit score is to stay in one place for a considerable amount of time. If you move address often in a year, lenders might get the impression that there might be some issues. 


Applying for car finance for beginners, especially young adults, may seem daunting but please don’t worry. And we have lots of blogs here on Carmoola to help support and educate you. Always prepare as best as you can for your car finance application, make sure you have all the relevant documents and personal information to hand, and make sure that you go with a finance provider that is clear, transparent and always ready to help you understand every part of the borrowing process. Like Carmoola! We have made sure that not only is it a very quick process to apply, but also that our all-encompassing car financing service is simple, easy to use and fully transparent. Check out the ‘How it Works’ section of our website, where you can see exactly how we help people get their dream car! 👍🚘