Which car finance option is best for you?

Learn more about the different types of vehicle finance options and choose the one that best suits you. Compare vehicle loans online and choose any vehicle from any dealer.

Why choose car finance?

Buying a car is likely to be one of the biggest purchases you’ll make in your life, as well as one of the most expensive. Consequently, you may need some help in managing your finances, so you don’t potentially lose out on a huge sum of money.

Once you’ve found your dream car, you can start thinking about how you’ll be paying for it.

This is where car financing comes in.

What is car finance and how does it work?

Car finance simply makes the entire process of buying a car much easier, as you won’t have to part with a lump sum of cash before you get behind the wheel. Purchasing a car on finance acts essentially means getting a loan for the car, which you can then pay back in affordable, fixed instalments each month. This allows you to control your finances by making it easier to budget.

Hire purchase (HP) and personal contract purchase (PCP) are the most common forms of car finance agreements, along with guarantor and personal loans. However, there are other options available, such as self-employed finance and no-deposit finance, all of which can go some way towards making it easier for you to find the one that suits your unique needs.

It’s important to research the different options available to you when picking a car finance scheme, and make sure that you choose the best, most affordable option for your needs.

Is it better to buy or finance a car?

In previous years, it was better to buy a car outright, but that’s no longer the case. The increasing cost of living means that fewer people are able to afford to pay for a car in full and still remain financially stable. Opting into a car finance program is a more affordable option, as it allows you to spread the overall cost over several monthly instalments.

Do you pay more when you finance a car?

How much you will need to repay when financing a car depends on various factors, such as how much money you borrowed and what type of contract it was loaned under. For example, under an HP agreement, the amount borrowed is based on the car’s retail value at the start of the contract. If the cost depreciates significantly, you’ll still need to continue paying back on the full amount agreed upon when you began the plan.

A PCP agreement works in a similar way in that your ownership of the car is delayed until the end of the contract. However, the overall loan is calculated based on its guaranteed future value, which means you only borrow the difference between what the car is worth at the start of your agreement and what it will be at the end. By doing this, your repayments will typically be cheaper than other options. This agreement also gives you the option to upgrade your car with the dealer and take out a new contract.

Does my credit score affect car finance?

Credit scores are important when getting any form of a loan, including your potential to be approved for car finance. Having a higher credit score increases your chances of success when applying for any loan, so you should bear this in mind when applying for finance. There are ways you can improve your credit score, including ensuring your credit report is up to date, and paying off any outstanding debts.

Even if you don’t have the best credit score, you may still be eligible for a loan. Our team are experts at securing car finance with bad credit, and can help you on your journey towards getting your dream car. This includes CCJs, late payments, mortgage arrears, and other situations that may initially deter lenders.

Can you pay off a car loan early?

This largely depends on your own finances and whether you can afford to make larger repayments. However, you should check the details in your own contract, as some companies will charge you early repayment fees if you pay off the full loan before your contract ends. This is generally calculated based on two months’ worth of interest that the lender would have otherwise lost out on. However, this can vary from company to company, so it’s important to check.

What happens if I’ve been refused car finance?

Regardless of why you’ve been refused for car finance in the past, there are still options available to help you afford a vehicle. In the event that lenders are cautious of your credit history, or you have found yourself unable to afford the deposit required for your initial loan enquiry, there are still other finance options available. A no deposit loan, for example, may require higher monthly repayments, but it can still help you secure the vehicle you want. What are the different vehicles I can get on finance?

We offer vehicle finance on several different modes of transport so we’re sure to find the perfect set of wheels for you. Our most common finance plans are for cars, though you can also secure vehicle finance for vans and motorbikes if these are better suited to your needs. You can choose from a range of different models with good age and mileage, spreading the cost of your loan across 18 to 60 months. There is also a range of finance options available including personal loans, hire purchase and personal contract purchase, while it may even be possible to acquire vehicle finance with no deposit.

What do I do next?

You can use our car finance calculator to estimate the value of your monthly repayments according to your budget and how long you wish to pay off your loan. This tool can also be used for van and motorbike vehicle finance. Next, get your free quote by providing us with personal details including your salary and employment information.

Once you’ve been conditionally accepted, you’ll be directed to call your dedicated finance expert and also share registration, mileage and dealership details if there is a vehicle you already have in mind. It’s crucial that you don't apply elsewhere in the meantime, as additional credit searches could affect your credit score and restrict our ability to hold this offer. When we have received all the required information, we will have your application approved and underwritten before paying out your vehicle finance on the same day.

What is a car finance loan?

A car finance loan is a loan that allows you to purchase a car of your choice. Repayments are typically spread across a fixed period of time, which includes additional interest and, in some cases, extra charges and fees.

What types of car finance loan are there?

There are three main types of car finance loan available to customers:

  • Personal loan: This involves taking out an unsecured personal loan and repaying monthly instalments over a fixed period. Not only can you purchase the vehicle upfront, but as the owner you can sell it whenever you need.
  • Hire purchase: Hiring a vehicle from a car finance company requires you to put down a deposit of around 10% of the full loan amount. You then pay monthly instalments for the duration of the agreed contract. The larger the deposit paid, the lower the instalments will be.
  • Personal contract purchase (PCP): Taking up this option works in a similar way to hire purchase, including monthly payments and an upfront deposit. This may be a more cost-effective option as you are paying off the depreciation of the car at the end of the contract, rather than the cost of a brand new vehicle. You then have the option of paying off the remaining value and holding onto the car, returning the car, or starting another PCP contract on a brand new car.

Not sure what finance is right for you?

If you’re not sure which finance option is right for you, we’ve put together a helpful table below to make things easier. This explains the features of each option explained above, allowing you to make a more informed decision that suits your circumstances.

Hire purchase
Contract Purchase
Requires initial deposit
Usually requires deposit
Usually requires deposit
You own the car outright
Car is yours at the end of the agreement
Fixed monthly payments
Optional balloon (final) payment
Excess mileage charges
Secured against an asset (eg car)

Who can get a car finance loan?

In order to apply for a car finance loan through Carplus you must:

  • Be aged 18-75 years old
  • Have been a UK resident for at least 12 months
  • Receive an income of £1,000 or above each month

If you currently have a provisional drivers licence, we may also be able to help you secure a car finance loan through one of our lenders.

How much will a car finance loan cost?

Before committing to a car finance loan you will want to ensure you are able to afford your preferred choice of car. The price you pay will vary depending on the:

  • Loan type: Choosing between an unsecured loan, PCP, or hire purchase agreement will have a direct impact on how much you pay each month, and overall.
  • Credit history: The better your credit history, the more favourable the interest rate on the loan will be. The opposite is also true, as lenders want to ensure you can afford to repay the loan without defaulting.
  • Deposit you put down: Putting down a larger deposit will usually mean your monthly instalments will be lower as a result.
  • Interest you take out: The annual percentage rate (APR) will vary depending on your individual circumstances. While a representative APR will be advertised, there is no guarantee you will be offered this figure for your loan. Carplus APR rates start at 5.9%.
  • Fees: There are usually additional fees attached to a car finance loan, such as purchasing fees, late or early repayment charges and costs related to mileage and damage and repairs. Make sure you are aware of these in full before signing the contract.

How do I apply for a car finance loan?

When applying for a car finance loan you will be asked to provide contact and address details, along with information about your employment, income and outgoings. You will also need to tell the lender how much you would like to borrow, your preferred repayment terms and the car you would like to buy.

The vast majority of providers allow you to make an application on their website. However, if you prefer the personal touch, you can visit their showroom, or contact them via email or phone.

Things to consider before applying for a car finance loan

Take into consideration the following before applying for a car finance loan to ensure you increase your chances of success:

  • Your budget: Look at your monthly finances to see how much you can afford to pay. This means analysing income and expenditure and ensuring you have a good amount of spare cash left over after taking a car finance loan into consideration.
  • Car choice: Think about what you need the car for and how it will be used. This will affect wear and tear, mileage and whether or not you are planning on keeping the car beyond the end of the contract.
  • Insurance cost: You will need to be fully insured before driving the car on UK roads. Some contracts also require you to have fully comprehensive insurance to cover all eventualities. Shop around to get an idea of how much extra this will add to your overall costs.
  • Warranty: Breakdown cover or repair and maintenance costs also have to be factored in. Some packages include these as standard, while others provide these as add-ons. Ask how much they cost and what they cover.
  • Gap insurance: Guaranteed Asset Protection (GAP) insurance offers extra financial security in the event of the car being written off while under contract. It will cover the difference in cost between the lender’s valuation of the car and the current market value, potentially saving you thousands of pounds.

What you'll need to apply

To apply for a car finance loan with Carplus you will need to provide your:

  • Annual income
  • Full home address
  • Contact number and email address

Will I qualify for car finance?

If you meet the minimum requirements needed to apply, you will have to wait until the credit checks are completed by the lender before knowing if you qualify for car finance.

Anyone who passes the affordability tests and has a good credit score will be in a better position to qualify for car finance. However, Carplus also provide access to car finance loans for people with poor and bad credit, ensuring everyone has a chance of successfully applying.

Will applying for a car loan affect my credit score?

In order to receive a range of quotes from our panel of lenders, we will run a ‘soft’ credit search, which will not have any impact on your credit score. This information is only seen by Carplus and not by any of our lenders.

If you wish to proceed to the next step of purchasing a product, your credit history can then be seen by the lender you are buying from. They will carry out a ‘hard’ credit check, which will be recorded on your credit file.

For anyone who believes they may struggle to meet the lender’s financial requirements, it may be best to improve your credit rating before making an application, as a failed submission can have a negative effect on your overall credit score.

Why compare car loans with us?

At Carplus we believe in providing an honest and transparent service to all our customers. That’s why once you’ve started your application process we will show you the exact APR for your loan, rather than just the representative figure. Our lender’s representative APR rates start from 5.9%.

It’s all part of ensuring you get the best deal possible and are completely aware of the full costs involved, so there are no last-minute surprises.

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Questions? Speak to a real person

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