New Car Finance Deals: Find the Best Options for Your Budget

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  • Fixed Interest Rates
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Tip: Keep an eye out for end-of-quarter deals. Dealerships often have targets to meet and may offer better finance terms during these periods.

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What Are the Different Types of New Car Finance?

When looking for new car finance deals, it's essential to understand the various options available:

  1. Personal Contract Purchase (PCP): With PCP, you pay an initial deposit, followed by monthly payments for a set period (usually 2-4 years). At the end of the term, you can either return the car, make a final payment to own it, or trade it in for a new vehicle.
  2. Hire Purchase (HP): HP involves paying a deposit and then making fixed monthly payments over an agreed term (typically 1-5 years). Once you've made all the payments, you own the car outright.
  3. Personal Loan: A personal loan allows you to borrow a fixed sum from a bank or lender, which you then repay in monthly instalments over an agreed term. You own the car from the start, giving you more flexibility than other finance options.
  4. Car Leasing: Leasing a car involves paying a fixed monthly fee to use the vehicle for a set period (usually 2-4 years). At the end of the lease, you simply return the car to the leasing company. This option is best for those who want to drive a new car every few years without the commitment of ownership.
What Are the Different Types of New Car Finance

Did you know: Some finance deals include free servicing or insurance for a set period. Factor in these perks when comparing the overall value of different offers.

How Do I Compare New Car Finance Plans?

To find the best new car finance deals, it's crucial to compare offers from multiple providers. When comparing plans, consider the following factors:

  • Annual Percentage Rate (APR): The APR represents the total cost of borrowing, including interest and fees, expressed as a percentage of the loan amount. Look for the lowest APR possible to save money on interest charges.
  • Monthly payments: Consider how much you can afford to pay each month and choose a plan that fits your budget. Keep in mind that lower monthly payments often mean a longer loan term and more interest paid overall.
  • Deposit: A larger deposit can reduce your monthly payments and total interest charges. However, make sure you can afford the upfront cost.
  • Loan term: A shorter loan term means higher monthly payments but less interest paid overall. Aim for the shortest term that you can comfortably afford.
  • Additional fees: Check for any extra costs, such as administration fees, early repayment charges, or balloon payments, and factor these into your budget when comparing deals.

Can I Get New Car Finance with a Bad Credit Score?

Yes, it's possible to get new car finance even if you have a low credit score or a limited credit history. Some lenders specialise in bad credit car finance and may be more willing to approve your application.

However, keep in mind that bad credit car finance often comes with higher interest rates and less favourable terms. To improve your chances of approval and secure better deals, consider:

Can I Get New Car Finance with a Bad Credit Score
  • Saving a larger deposit: A higher deposit shows lenders that you're committed to the purchase and reduces the amount you need to borrow.
  • Applying with a guarantor: A guarantor is someone (usually a parent or close relative) who co-signs your loan and agrees to make the repayments if you can't. This can increase your chances of approval and help you access better interest rates.
  • Improving your credit score: Before applying for car finance, take steps to boost your credit score, such as paying bills on time, reducing your credit utilisation, and correcting any errors on your credit report.

Remember: Even if you're offered finance with bad credit, it's worth considering whether waiting and improving your credit score could lead to significantly better terms.

What Are the Eligibility Criteria for New Car Finance?

Eligibility criteria for new car finance can vary between lenders, but typically include:

  • Age: You must be at least 18 years old (some lenders require a minimum age of 21).
  • UK residence: You must be a UK resident with a valid UK address.
  • Income: You must have a regular income that's sufficient to cover the monthly repayments. This could be from employment, self-employment, or benefits.
  • Credit history: Lenders will check your credit report to assess your creditworthiness. A higher credit score increases your chances of approval and may help you access better interest rates.
  • Driving licence: Some lenders require you to have a valid UK driving licence, while others may accept provisional licences or international licences.

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How Can I Reduce the Cost of New Car Finance?

To get the best deal on new car finance and reduce your overall costs, consider the following tips:

  1. Shop around: Don't settle for the first deal you find. Compare offers from multiple lenders, including banks, dealerships, and online brokers, to find the most competitive rates and terms.
  2. Negotiate the price: Before applying for finance, try to negotiate a lower price for the car. The less you borrow, the less you'll pay in interest over the term of the loan.
  3. Choose a shorter loan term: While a longer loan term may mean lower monthly payments, you'll pay more in interest overall. Opting for a shorter term can save you money in the long run, provided you can afford the higher monthly instalments.
  4. Make a larger deposit: Putting down a larger deposit reduces the amount you need to borrow and can help you secure lower interest rates. Aim to save as much as possible before applying for finance.
  5. Improve your credit score: A higher credit score can help you access better deals and lower interest rates. Take steps to improve your credit, such as paying bills on time, reducing your credit utilisation, and correcting any errors on your credit report.

Tip: Consider pre-registering for deals with manufacturers. Some offer exclusive finance rates to customers who have expressed interest early.

What Additional Costs Should I Consider When Financing a New Car?

In addition to your monthly finance payments, there are several other costs to consider when budgeting for a new car:

  1. Insurance: All vehicles on UK roads must have a valid car insurance policy. New cars can be more expensive to insure, especially for young or inexperienced drivers. Use car insurance comparison websites to find the best deals and consider opting for a higher voluntary excess to reduce your premiums.
  2. Road tax: Vehicle Excise Duty (VED), or road tax, is an annual fee that all vehicle owners must pay. The amount depends on your car's CO2 emissions and fuel type. Electric vehicles are exempt from road tax.
  3. MOT and servicing: Once your car is three years old, it must pass an annual MOT test to ensure it's roadworthy. Regular servicing is also essential to maintain your car's performance and safety. Factor these costs into your budget when considering new car finance.
  4. Fuel: The cost of petrol or diesel can add up quickly, especially if you drive frequently or have a long commute. Consider your car's fuel efficiency when choosing a model and budget accordingly.
  5. Breakdown coverage: Breakdown coverage provides assistance if your car breaks down or has a flat battery. Some new car finance deals include breakdown coverage, but if not, consider purchasing a separate policy for peace of mind.
What Additional Costs Should I Consider When Financing a New Car

How to Apply for a Car Loan

Applying for a car loan can be a straightforward process, especially when using our simple four-step guide. Whether you're looking to finance a new or used car, our loans calculator and soft credit checks make it easy to find the best deal for your personal circumstances.

Step 1 – Use Our Loans Calculator

Begin by using our user-friendly loans calculator to determine how much you can afford to borrow and what your monthly repayments might look like. Simply enter the loan amount, desired loan term, and representative APR to get an instant estimate.

Keep in mind that the representative APR is the annual percentage rate that at least 51% of successful applicants will receive. Your personal circumstances, credit rating, and the amount of interest charged may affect the final APR you're offered.

Step 2 – Have Your Personal Details to Hand to Apply

When you're ready to apply for your car loan, make sure you have all the necessary personal information on hand to streamline the process. You'll typically need to provide:

  • Full name and date of birth
  • Current address and contact details
  • Employment information and income details
  • Bank account and outgoings (e.g., mortgage payments, direct debits)
  • Details of the car you wish to purchase

Having this information readily available will help you complete the loan application quickly and accurately.

Step 3 – We Will Run Our Soft Credit and Approval Checks

Once you've submitted your application, we'll conduct a soft credit check to assess your creditworthiness and determine your eligibility for a car loan. Soft credit checks don't affect your credit score, so you can apply with confidence.

We'll also run our approval checks to verify your identity, income, and affordability. This helps us ensure that we're lending responsibly and that you can comfortably manage your loan repayments alongside your other financial commitments.

Step 4 – Receive a Decision

After completing our soft credit and approval checks, we'll provide you with a decision on your car loan application. If approved, we'll send you a loan agreement outlining the terms and conditions of your loan, including the APR, monthly repayments, and total amount payable.

Take the time to carefully review your loan agreement and make sure you're comfortable with the terms before signing. If you have any questions or concerns, don't hesitate to contact our friendly customer support team for assistance.

Can I Repay My Car Loan Early

Can I Repay My Car Loan Early?

Yes, you can typically repay your car loan early, either in part or in full, depending on the terms of your loan agreement. Paying off your loan early can save you money on interest charges and help you become debt-free sooner.

However, it's essential to check your loan agreement for any early repayment fees or penalties. Some lenders may charge a fee for settling your loan before the end of the agreed term, which could offset some of the savings you make on interest.

If you're considering repaying your car loan early, contact your lender to discuss your options and determine the best course of action for your personal circumstances.

How Quickly Can I Get a Car Loan?

The speed at which you can get a car loan depends on several factors, including the lender you choose, your credit rating, and the completeness of your application.

Many online lenders, including ourselves, offer a quick and easy application process, with decisions often made within minutes. If approved, you could receive your loan funds within 24-48 hours, allowing you to purchase your car and get on the road without delay.

To ensure a speedy application process, make sure you:

  1. Check your credit score: Before applying, check your credit report for any errors or areas for improvement. A higher credit score can increase your chances of approval and help you secure better loan terms.
  2. Gather necessary documents: Have all the required information and documents ready when you apply, such as proof of income, bank statements, and identification.
  3. Choose the right lender: Research different lenders and compare their loan offerings, processing times, and customer reviews. Choose a reputable lender with a track record of providing quick and efficient service.
  4. Be honest and accurate: Provide accurate information on your loan application to avoid delays or rejection. Misleading information could slow down the approval process or result in your application being denied.
  5. Read and sign your loan agreement promptly: Once approved, carefully read your loan agreement and sign it as soon as possible to expedite the funding process. Make sure you understand the terms and conditions before signing.

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What Can I Use My Car Loan For?

A car loan is a popular option for financing the purchase of a new or used car, but did you know that you can use your loan funds for more than just the vehicle itself? Here are some common ways you can use your car loan:

  1. Car purchase: The primary use of a car loan is to buy a new or used car from a dealership or private seller. Your loan funds will cover the cost of the vehicle, minus any deposit you put down.
  2. Vehicle taxes and fees: In addition to the car's purchase price, you can use your loan to cover related taxes and fees, such as sales tax, registration fees, and licence plate costs.
  3. Extended warranties: If you're buying a used car or want added peace of mind, you can use your loan to purchase an extended warranty that covers repairs and maintenance beyond the manufacturer's warranty.
  4. Insurance premiums: Some lenders allow you to include the cost of your car insurance premiums in your loan, spreading the cost over your monthly repayments.
  5. Modifications or upgrades: If you're planning to modify or upgrade your car, such as adding a new sound system or installing performance parts, you can factor these costs into your loan amount.

Did you know: Some lenders offer 'complete package' deals that cover extras like GAP insurance or extended warranties. These can sometimes work out cheaper than arranging everything separately.

What Are the Alternatives to a Car Loan?

While car loans are a popular choice for financing a vehicle purchase, they're not the only option available. Here are some alternatives to consider:

  1. Personal savings: If you have sufficient savings, you could consider buying your car outright. This allows you to avoid interest charges and debt, and you'll own the vehicle from day one.
  2. Personal loan: A personal loan is an unsecured loan that you can use for any purpose, including buying a car. Personal loans typically have higher interest rates than car loans, but they offer more flexibility and don't require the car as collateral.
  3. Hire purchase (HP): With HP, you pay a deposit and then make fixed monthly payments over an agreed term. At the end of the term, you own the car outright. HP agreements usually require a lower deposit than car loans.
  4. Personal contract purchase (PCP): PCP involves paying a deposit and low monthly instalments over a set period. At the end of the contract, you can return the car, pay a final balloon payment to own it, or trade it in for a new vehicle. PCP often has lower monthly payments than car loans or HP.
  5. Leasing: Leasing a car involves paying a fixed monthly fee to use the vehicle for a set period, usually 2-4 years. At the end of the lease, you return the car to the leasing company. Leasing can be a good option if you want to drive a new car every few years without the commitment of ownership.
  6. Credit card: While not recommended for large purchases, you could use a credit card to buy a car if you have a high enough credit limit. However, credit cards often have high-interest rates, and it's essential to pay off the balance quickly to avoid excessive interest charges.
What Are the Alternatives to a Car Loan

Our Car Expert Comments:

"When financing your dream car, look at all options to find the best fit for your needs and budget. PCP is fantastic if you enjoy driving the latest models and want flexibility. For those with less-than-perfect credit but can manage monthly payments, HP offers a path to ownership. However, with a strong credit score and competitive interest rate, a car loan may be the most cost-effective. Consider your deposit, monthly budget, and long-term goals to navigate car finance with confidence and drive away with the best deal."

Charlotte Yates
Charlotte Yates

Personal finance content expert

Frequently Asked Questions

Yes, it's possible to get a car loan with bad credit, although you may face higher interest rates and less favourable terms. Some lenders specialise in bad credit car loans and may be more willing to approve your application. To improve your chances of approval, consider applying with a co-signer, saving a larger deposit, or improving your credit score before applying.

When applying for a car loan, you'll typically need to provide proof of identity (e.g., passport or driving licence), proof of address (e.g., utility bills or bank statements), proof of income (e.g., payslips or tax returns), and details of the car you wish to purchase (e.g., make, model, and price).

The time it takes to get approved for a car loan varies depending on the lender and your personal circumstances. Some online lenders offer instant decisions, while others may take a few days to process your application. If approved, you could receive your loan funds within 24-48 hours.

Yes, you can use a car loan to purchase a vehicle from a private seller. However, some lenders may have restrictions on the age or condition of the car, so it's essential to check the loan terms before applying. When buying from a private seller, make sure you conduct thorough checks on the vehicle's history and condition before committing to the purchase.

If you miss a car loan payment, contact your lender immediately to discuss your options. They may be able to offer a payment holiday or restructure your loan to make repayments more manageable. Missing multiple payments can result in default charges, damage to your credit score, and potentially repossession of the vehicle.

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References

  • [1] Money Advice Service
  • [2] Experian
  • [3] Citizens Advice

Page last updated on: 28/05/2024

Page reviewed by: Shay Ramani

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