Car finance deals can seem pretty irresistible on the surface. However, there are costs to consider when entering into a finance deal of any kind.

Right now, car finance rates are as low as they have ever been across the United Kingdom. Use our online car finance calculator for an indication of the offers available – including a wave of 0% finance deals for those who act fast.

Financing a car brings the benefit of low monthly repayments and affordable or even absent deposit requirements. Overall loan affordability varies significantly from one lender to the next, highlighting the importance of comparing the market in full for an unbeatable deal.

The Different Types of Car Finance

How much you pay for your car will be influenced heavily by the type of car finance you choose. There are three primary car finance variants available in the UK, as follows:

  • A Hire Purchase (HP) agreement – This is the classic monthly repayment scheme, where you pay an initial deposit before gradually repaying the balance with a scheduled instalment each month. When the full balance has been paid, you gain ownership of the car.
  • Personal Contract Purchase (PCP) agreement – PCP differs in the way in which you do not automatically take ownership of your vehicle at the end of the loan term. You can pay a ‘balloon’ payment to keep the car, you can hand it back to the service provider or you can swap it for a newer model and continue the monthly payments.
  • Leasing – Personal Contract Hire (PCH) – This is almost the same as PCP, only with no option to take ownership of the vehicle. Monthly payments may be slightly higher, but all vehicle maintenance, servicing and repairs are covered in the contract.

Along with the type of agreement you choose, there are several additional factors that will influence the cost of your car finance loan.

Examples of which include:

The value of the car

For obvious reasons, it may take longer to repay the balance on an expensive new car than a cheaper used car. The longer it takes to repay the loan, the more you will pay by way of accumulated interest.

Deposit size

Paying a larger deposit means immediately reducing the amount you have to borrow and the overall interest on the loan. In addition, a car finance lender will usually look favourably on those who offer bigger deposits, rewarding them with lower APRs and other incentives.

The length of the loan

Repaying loans as quickly as possible holds the key to minimising overall borrowing costs. If it is possible to repay your car finance loan in two years rather than ten years, opt for a shorter-term loan.

Your credit score

Your credit score will be taken into account by those scrutinising your application. If you have an imperfect credit history, work with a broker to find a specialist lender who welcomes poor-credit applicants.

Our Car Finance Calculator

Use our exclusive online car finance calculator for a rough idea of how much you can expect to repay, both in terms of monthly payments and overall borrowing costs.

Whether you are ready to apply for car finance or simply considering the available options, we would be delighted to provide you with an obligation-free consultation.

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