The Future of Car Finance

If you're looking for more information on car finance, you've come to the right place! Here, we explore the difference between HP and PCP agreements, and answer the top FAQs on car loans to help you get a better understanding, and feel well informed if you decide to get finance on your next car.

The right car finance deal for you

Car finance often has a couple of different payment options, so we thought it best to explain the difference between them. We are passionate about ensuring you always understand all your options, and don't forget, you can easily get in touch with us for help if you need it. 

Is car finance worth it?

This is a great question! It's important to understand that taking car finance is a commitment, but one that actually gives you a lot of freedom, and loads of great benefits. Spreading the cost of your car usually means that you can afford to drive a much safer, newer (and cooler 😎)  vehicle. But it's important to understand the different types of car finance in a bit more detail, so you can choose a plan that works best for you. We also think it's important to understand the risks of getting car finance. If you don't keep up with your repayments, then there is a risk your car will be repossessed, and it could be reported back to the credit reference agencies. If this happens, your credit profile will be affected, and in severe cases this could prevent you from getting access to financial products in the future, or those products may become more expensive for you, as companies will see you as a high risk customer.

Zero deposit car finance deals

Many lenders offer you the chance to get a 0 deposit finance deal. This means that you'll borrow 100% of the value of the car - no savings needed! It can be really convenient for some car buyers, because zero deposit agreements don't require any upfront payments, meaning you can finance you car and buy it instantly. Car finance with zero deposit works best for used cars, and will usually be given on a Hire Purchase agreement. You can read more about that below. Again, there are risks with a zero deposit car finance agreement. If you don't contribute any deposit, then your monthly payments will be higher, as you'll be borrowing and repaying the entire cost of the car. Instead of contributing a deposit, some customers decide to part exchange their old car, and this can help towards the cost of a new one.

Car finance rates in the UK

Interest rates for car finance can vary from one provider to another, but also will depend heavily on your credit profile. When applying for car finance, the interest rate you'll be offered will depend on the lender's assessment of your risk and affordability. The better your credit file and likelihood of paying back the loan, the lower the APR you can get. 

Hire Purchase (HP)

HP is a car finance plan that helps you to spread the cost of your next car by making monthly payments over an agreed length of time.

You’re likely to pay higher monthly payments than a Personal Contract Purchase (PCP) agreement, but when you come to the end of the agreement you’ll own the car outright.

There are no annual mileage limits to worry about, so you can drive as much as you like!

A Hire Purchase agreement could be perfect for you if you’re keen to keep the car at the end of the term.

Hire Purchase (HP)

Personal Contract Purchase (PCP)

PCP is a type of car finance plan enabling you to make affordable monthly payments over an agreed contract length, with a larger (optional) final ‘balloon’ payment due at the end. The balloon payment is only due if you want to buy the car outright.

At the end of the contract, you’ll have three options to choose from. Option 1 is to hand the car back to the finance company (it needs to be in good condition and you’ll need to have kept under the agreed mileage, otherwise there may be additional fees to pay). Option 2 is to part-exchange it for another car, and start a new agreement for that car (subject to status). Option 3 is to pay the final balloon payment, and you’ll own the car outright.

PCP might be best for you if you’re thinking of changing your car every couple of years, or if you’re unsure about whether you’ll want to buy the car at the end of the term or not.

 

Personal Contract Purchase (PCP)

Did you know?

PCP monthly payments can often be more affordable than HP monthly payments. The reason for this is that a large part of the total amount payable on the PCP agreement is left to the end. You’ll also pay interest on the value of the car at the end of the contract, which means that PCP can be more costly overall.

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Popular car finance questions

What information do I need to provide?

You’ll add a few personal details such as name and current address, and verify your identity with a passport or driving licence

What is a "balloon" payment?

A balloon payment is an amount of money due at the end of your finance agreement. This amount is set when you sign the agreement. It can be calculated based on the 'Guaranteed Minimum Future Value' of the car at the end of the contract or a pre-agreed amount based on the type of finance agreement you have taken out. 

Can I repay my loan early?

It's always possible to repay your car loan early. If you are in a comfortable position financially then you can save big on the total amount of interest you pay. You need to consider the value of the car and what type of car finance you have... some providers will charge you fees for early repayment.  

Who can get a car finance loan?

To get car finance, you will have to be over 18. Most lenders have their own requirements about who they will lend to, so any application will be subject to status an eligibility.

 

Am I eligible for car finance?

This can entirely depend on your individual situation, and each lender may have some different criteria about who they can and cannot lend to. For example, some people who are self-employed may not be able to get car finance with a particular lender, but there may be several others who can help!

Does a car finance quote affect my credit rating?

No, it shouldn't! Many brokers and lenders only run a 'soft' credit search, and you'll be able to see how much you can borrow. A 'hard' credit search, which may affect your credit rating, only happens right at the end of the process when you sign the documents and buy your car. 

Will multiple quotes affect my credit rating?

We do believe that you should shop around for your car finance agreement, but you do need to be wary of lenders or brokers running what's called a 'hard credit search' on you. These leave an imprint on your credit file, which if you have too many, can be a red flag for other lenders. 

How are car finance decisions made?

There are several key factors that contribute to car finance decisions. Your credit profile, your affordability, proof of identity, and the car you're buying.