Compare Car Finance

Car finance is a method of borrowing money specifically to purchase a vehicle. Instead of paying the full price upfront, you agree to make monthly payments, with added interest, over a set period. Once you've made all the payments, you'll own the car outright. It's essentially like taking out a loan, but the loan is secured against the car.

In the UK, there are several types of car finance to choose from:

• Personal Contract Purchase (PCP): A popular option where you pay a deposit, make low monthly payments, and then choose to either return the car, pay a final balloon payment to own it, or trade it in for a new car.
• Hire Purchase (HP): A straightforward loan where you pay a deposit and then fixed monthly payments until you own the car.
• Personal Contract Hire (PCH), or leasing: Essentially a long-term car rental. You never own the car, but make fixed payments to use it for an agreed period and mileage.
• Unsecured personal loans: A loan from a bank or other lender that isn't secured against the car. You own the car outright from the start.
• Credit cards: Can be used for smaller car purchases, but typically have high interest rates.

To choose the right car finance, consider your personal circumstances. Think about your budget, how much you can afford for a deposit and monthly payments, and how long you want to keep the car. Check your credit score too, as this can affect the deals available to you. PCP is good for regular car changers, HP and loans are best if you want to own the car, and leasing is ideal if you don't want the responsibilities of ownership.

With PCP, you pay an initial deposit, typically around 10%, and then make fixed monthly payments over a set term, usually 2-4 years. These payments are generally lower than with other finance types because they don't cover the full value of the car. At the end of the term, you have three choices: hand the car back and walk away (subject to mileage and condition restrictions), make a final balloon payment to own the car outright, or trade the car in and use any equity towards a new PCP agreement.

Hire Purchase is a simpler form of car finance. Like PCP, you pay a deposit and then make fixed monthly payments. However, the monthly payments are higher because they're calculated to cover the full value of the car over the term of the agreement, which is usually 1-5 years. There's no large balloon payment at the end - once you've made the final monthly payment, you own the car outright. The car remains the property of the finance company until this final payment.

Yes, leasing and Personal Contract Hire (PCH) are the same thing. When you lease a car, you make fixed monthly payments to use the car for an agreed period, typically 2-4 years, and for an agreed annual mileage. Once the contract ends, you simply return the car to the leasing company. You never own the car, and there's no option to buy it. Leasing is essentially a long-term rental.

Getting car finance with bad credit is possible, but it can be more difficult and expensive. Some lenders specialise in 'subprime' car finance for those with poor credit, but the interest rates are usually much higher to offset the perceived risk. The key is to check your credit report before applying, and to compare deals carefully. Be wary of any lender that guarantees approval regardless of credit history, as they may charge very high interest rates.

Deposit requirements vary significantly between different types of car finance and different lenders. Some deals, particularly for those with good credit, may be available with no deposit at all. However, it's more common to be asked for a deposit of around 10% of the car's value. In general, the larger the deposit you can put down, the lower your monthly payments and the less interest you'll pay overall.

Your ability to cancel a car finance agreement depends on the type of finance and the terms of your specific contract. By law, you have a right to withdraw from a PCP or HP agreement within 14 days of signing. After this, you can usually cancel the agreement voluntarily, but you may face significant early repayment charges. With leasing, there's no automatic right to cancel, but some leasing companies may allow you to end the contract early if you pay a termination fee.

If you have a car on PCP or HP Finance, you don't legally own the car until you've made all the payments. This means you can't sell the car without first settling the finance. If you do sell the car, you must use the proceeds to pay off the outstanding finance balance. Any money left over is yours to keep. If the car sells for less than the finance balance, you'll need to make up the difference. With leasing, you never own the car, so you can't sell it at all.

Before committing to car finance, it's crucial to do your due diligence. Key steps include checking your credit report for errors, working out a realistic budget for monthly payments, comparing different finance types and lenders, reading the fine print for hidden fees or charges, and considering additional protection like GAP insurance, especially for brand new cars.

To improve your car finance chances, start by checking your credit report for errors and getting them corrected. Aim to build your credit score by using credit responsibly and always making payments on time. Save up for a larger deposit, as this can open up better finance deals. Be realistic about the car you can afford, as overreaching can lead to rejected applications. Always be honest in your finance application, and have proof of income and address ready to provide.

When you apply for car finance, you'll typically need to provide several key documents. These include proof of identity (such as a passport or driving license), proof of address (like recent utility bills or bank statements), details of your employment and income (payslips, bank statements, or accounts if self-employed), information about the car you want to finance (make, model, age, mileage, etc.), and your bank details for setting up the monthly direct debit payments.

Yes, some lenders offer car finance for students. However, as a student, you may face some additional challenges. Lenders may charge higher interest rates to offset the perceived higher risk of lending to students, and you may need to provide extra documentation to prove your ability to make repayments. Some student car finance may require a guarantor, usually a parent, to co-sign the agreement and agree to make payments if you can't.

Missing a car finance payment can have serious consequences. Most lenders will charge a late payment fee, and your credit score will likely take a hit. If you continue to miss payments, the lender may eventually repossess the car. They can then sell it to recoup their losses, and you'll be liable for any shortfall, plus additional fees. If you're struggling to make payments, the best thing to do is contact your lender immediately. They may be able to offer a temporary payment holiday or restructure your payments to make them more manageable.