Best Way To Finance Your Next Car

Aside from getting a mortgage, getting a car can be one of the biggest purchases you will make in your life and it’s important that you make the right decision. Car finance makes getting a …


Aside from getting a mortgage, getting a car can be one of the biggest purchases you will make in your life and it’s important that you make the right decision. Car finance makes getting a car more affordable and splits the payments rather than forking out a large sum. Whilst car finance reduces the need to make a large purchase, it’s still a legal agreement and can last for a number of years. For this reason, its important you get the right deal at the right rate!

If you’ve never taken out car finance before, you may be wondering how you get approved for finance and also what type of car finance agreements are available to you. In the UK, the two most popular ways to pay for a car is through Personal Contract Purchase and Hire Purchase. There are also a number of factors that car finance lenders consider before they accept you for finance. Let’s explore the options below.

Factors which can affect your car finance approval:

Car finance is never guaranteed to anyone, and car finance lenders want to be assured that you can pay back the loan they offer you. From a lenders point of view, they are loaning you the money to purchase a car and cars can be expensive! Lenders require a few checks to see if you could be trusted to pay back your loan on time and in full.

Credit score

People with good credit scores tend to have a good track record of making payments in the past. This reduces the risk that lending money poses to the lender. Having a better credit score when applying for car finance can help you to get approved and also lower your interest rate offered. There are F&I department in car dealership and F&I manager will help you get a good deal for your car.


Employment and affordability usually go hand in hand. You can use your employment status to help you get approved for finance. Lenders mainly want to lend to people with good income and full-time employment. However, there are also options available for retired, living on benefits, armed forces, and student car finance with a good credit history.


Another factor that lenders will consider is how much you can afford to spend on car finance each month. They want to know you can meet the repayments each month and that your income is not likely to reduce any time soon. You can usually prove your affordability through the use of bank statements.


Car finance agreements are a legally binding contract and because of this, you will be required to be at least 18 years old before you can get a finance agreement in your name. Alternatively, some lenders also have restrictions on the maximum age you can be to take out finance. If you are an older driver, it can be worth checking their age requirements before applying.

Should you get a car through Personal Contract Purchase?

Personal Contract Purchase is a secured loan and can benefit customers who want low monthly payments and more flexibility to change cars more often. Monthly payments tend to be lower as you only cover the cost of part of the cars value and not the whole thing. A secured loan means that the lender owns the car until the end of the agreement and if you fail to make repayments, the lender has the right to take the car off you. This also means that you have more options at the end of your agreement. You can either:

  • Hand the car back to the dealer and the agreement has ended
  • Pay the final payment and keep the car. This tends to be quite large so you could choose to refinance your balloon payment instead.
  • Use the resale value of the car towards another car on PCP.

With PCP car finance, you should be aware that you will need to agree to keep the car in good condition as most PCP deals end with the car being handed back to the dealer. You will need to agree to mileage limits and damage charges. If you exceed these terms, you will face additionally charges on your finance agreement.

How does Hire Purchase car finance work?

Hire Purchase car finance is a straightforward type of finance which allows you to spread the total cost for your chosen car into affordable monthly repayments. Like PCP deals, hire purchase is a secured loan which means it belong to the lender throughout the agreement. You will become the legal owner of the car once you pay the final payment which is usually similar to the price of your monthly payments. Hire purchase can have higher monthly payments than PCP deals but you can benefit from fixed monthly payments and interest rates throughout. Hire purchase can be a good option for people who have poor credit and are struggling to get approved. It reduces the risk to the lender because they have the car as collateral if you fail to pay.

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