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Mar
If you’re considering financing your next car, it’s important to understand how the process works and what options are available to you. Car finance can offer a flexible way to spread the cost of a vehicle over time, but it can also raise a number of questions.
As an expert in car finance, we’ve answered some of the most frequently asked questions to help guide you through the process.
What is car finance?
Car finance is a way to pay for a vehicle in instalments rather than paying the full price upfront. It’s essentially a loan that allows you to drive away in a car, with the option to own it at the end of the agreement or return it, depending on the type of finance plan you choose.
What types of car finance are available?
There are a few different types of car finance available, with each offering different terms and flexibility. The most common options include:
- Hire Purchase (HP Car Finance): This is a straightforward finance agreement where you pay an initial deposit followed by monthly payments for a set term, typically one to five years. At the end of the term, you’ll own the car outright.
- Personal Contract Purchase (PCP Car Finance): PCP typically allows for lower monthly payments compared to HP, as you’ll only be paying for the car’s depreciation over the agreement period. At the end of the term, you have the option to buy the car for a balloon payment, part-exchange it for a new model, or walk away.
- Personal Contract Hire (PCH Car Finance): PCH is a long-term lease where you pay a monthly fee to drive a car for a set period, usually two to four years. You won’t own the car at the end of the contract, so it’s often used by people who prefer changing their car regularly.
How do I qualify for car finance?
To qualify for car finance, lenders will typically assess your financial situation, credit score, and ability to make the monthly payments. Generally, to qualify for car finance you’ll need:
- Proof of identity and address
- A stable income or employment status
- A good credit history (although some lenders offer bad credit car finance options)
- A UK bank account
What credit score do I need for car finance?
Each lender will have different criteria to assess applicants, however, having a good credit score will generally mean you can access better terms in your finance agreement. A score of 700 or higher is often considered good, but it’s possible to get car finance with a lower score, though this could result in higher interest rates. If you have bad credit but are currently in a good financial situation, you might still be approved for car finance but could face higher costs or stricter terms.
How much can I borrow for car finance?
The amount you can borrow will depend on various factors, including your income, credit score, and the value of the vehicle. Lenders will typically offer finance for up to 100% of the car’s value, but the loan amount could be capped based on affordability assessments. Generally, your monthly repayments shouldn’t exceed a third of your monthly income.
How do car finance payments work?
Car finance payments will typically be paid monthly, with the amount determined by factors such as how much deposit was paid, how long the loan term is, and the type of finance agreement chosen. Some agreements can also include additional costs like servicing or insurance. The payment will usually be fixed, which means you’ll pay the same amount each month, which can make it easier to budget.
Can I pay off my car finance early?
Yes, most car finance agreements allow you to pay off the loan early, though there can sometimes be early repayment charges. It’s always best to check the terms of your agreement before deciding to pay off your finance early.
You can read more in our blog, Is It Worth Paying Off My Car Finance Early?.
What happens if I miss a car finance payment?
Missing a payment can have serious consequences, including penalties, increased interest, and damage to your credit score. Lenders could also repossess the car if multiple payments are missed over an extended period. If you’re struggling with payments, you should contact the lender immediately to discuss your options, as they may be able to offer a payment holiday or restructure the loan so its more manageable.
How long does it take to get approved for car finance?
Approval for car finance can often be obtained within minutes if you apply online. However, finalising the deal will take longer and will depend on how complex your application is and the lender’s process. For standard applications, approval is usually received within 24 to 48 hours, but it could take longer for more complicated cases.
Can I finance a used car?
Yes, you can finance a used car. Many car finance providers offer loans for both new and used cars. However, the terms of the loan, such as the interest rate or length of the agreement, will vary depending on the age and condition of the vehicle. Some lenders will have age limits for used cars, so it’s important to check these before applying.
You can take a look at our car finance showroom deals to see the vehicles we currently have available for you.
What happens at the end of my car finance agreement?
At the end of your car finance agreement, what will happen will depend on the type of finance you’ve taken:
- Hire Purchase (HP): If you’ve made all the payments, you own the car outright.
- Personal Contract Purchase (PCP): You can either pay the final balloon payment to own the car, part-exchange it for a new model, or return it.
- Personal Contract Hire (PCH): You return the car to the finance company, and you may have the option to lease a new vehicle.
GetCarFinanceHere can help you to find the best car finance deals. Our expert team will look through all the options from our network of lenders to find the right car finance for your specific circumstances. Apply for car finance online today or contact us for more information.