Car Finance

This will vary depending on the type of car finance and your own credit score. Below are some representative examples of good APR rates for the different types of car finance:

Hire Purchase: 9.46%
Personal Contract Purchase: 5%
Personal Loan: 2.8%

The above are purely representative and are based on a good credit rating.

While you won’t need a good credit score to flat out buy a car, it can affect things if you want to get car finance. Overall the better your credit rating the better deal you’ll get on your car finance.

A poorer credit score may mean you are either denied car finance altogether by some lenders or else face higher interest rates or monthly repayments. That shouldn’t put you off though, at ChooseMyCar we are experts in bad credit car finance and can even help people with CCJs or IVAs get car finance. For more information on raising your credit score, check out our guide.

The amount you can afford to spend on a car will vary depending on your situation. The important thing is to make sure you can afford any repayments that your car finance agreement sets out. Missing repayments can cause issues between you and your lender and could end up in court or affecting your credit rating. 

To work out what you can afford, try our car finance calculator.

Your car finance may have been refused for a number of reasons. These are generally one of the following: 

• Poor credit history or a bad credit score - read our tips on improving your credit score
  
• You don’t meet the criteria for qualifying for that lender’s finance
  
• Your employment status - some lenders won't approve you if you are unemployed or self employed
  
• Type of driving license
  
• Age - this could be because you're too old or a young driver. 

For more information on why you may have been declined, please read our guide on being refused car finance.

Generally paying a large deposit upfront can reduce the cost of your monthly repayments. This isn’t the case for every type of car finance however and in many cases no deposit is needed. We’ve put together a guide on no deposit car finance and on how much your car finance deposit should be.

Guarantors will have to undergo a credit check at the same time as the borrower. This is done to make sure that they are in the right situation to be making any repayments if they are called upon, and the lender will want to see that they are reliable.

The length of a car finance agreement will vary for a number of reasons. The overall length of a term is usually measured in 12 month increments. 

These terms usually start with a minimum of 24 months (2 years) upt to a maximum of 96 months (8 years). Generally terms for used cars are shorter than those for long cars. 

While the monthly repayments will likely be lower on a longer term plan, it’s worth working out how much interest you’ll pay if you opt for something over a longer period of time.

The overall cost of car finance will vary depending on the type of car finance that you choose. 

The cost of getting a car on finance will be the overall cost of the car, plus any interest owed over the term agreed. 

For a personal contract hire agreement it’s worked out slightly differently; the amount you pay is calculated by the cost of the depreciation of the car over the term agreed. 

Some types of car finance may also include fees for excessive mileage, any damage to the car or a maintenance cost, so keep an eye out for this. 

If you want to find out what you can afford, check out our car finance calculator.

A voluntary termination agreement lets you cancel your car finance early. By law, you can voluntarily terminate a HP or PCP contract.

You can cancel HP and PCP agreements if you''ve paid back 50% of the total finance amount - and if the car's in good condition. The PCP balloon payment is included in the 50% - so you''d have to pay half of this too.

Not repaid enough yet? You may be able to pay the difference up front and then cancel the contract. But if you terminate after you''ve already repaid over 50%, you won't receive a refund.

Bear in mind, voluntary termination may appear on your credit file. But it probably won't affect your score.

Selling your car with outstanding finance depends on the type of car finance you have.

On a hire purchase agreement you technically can't sell your car, but if you've repaid 50% you may be able to return it to your lender, or else pay the remaining fees before you sell it on.

On a PCP agreement it works in the same way as the hire purchase in terms of returning it. However, as you'd have to opt in to owning the car at the end with the additional cost of the balloon payment.

You can sell a car on a personal loan agreement, but it will still be on you to make the repayments from the original agreement.

You cannot sell your car on a personal contract hire agreement as it's never yours to sell.

A car on finance is legally owned by the finance company until all payments are made. You are the registered keeper of the car, but not the owner.

With HP and PCP contracts, you only become the legal owner at the end of the term, once you've made all payments. And with PCP, you'll have to make a balloon payment at the end to keep the car. Until then, the finance company legally owns it.

If you’re leasing the car, you never own it. But if you buy a car using a personal loan, you are the legal owner straight away. You simply repay the lender the money you borrowed.

Your credit file is checked if you apply for car finance. And you'll usually have to provide proof of ID, address, and income. The specific documents you'll need ultimately depend on the finance provider you go with.

Providers will check your credit score when you apply - initially via a soft search. They'll perform a hard credit check if you choose to enter into a contract with them. Most lenders will need to see your driving licence - full or provisional. You may also be asked to provide:

• Your passport - for proof of ID
• Utility bills or council tax letters - for proof of address. These usually need to be dated within the last three months.
• Payslips - for proof of income and to make sure you can afford the payments. Some providers may ask to see a few months' worth.

A mileage allowance is used for PCP and PCH car finance deals. This is the number of miles you can use your car for annually before being charged.

It will be written in to your contract and the number based on your estimated annual mileage, so give yourself a cushion in case your circumstances change and your mileage increased.

If you go over your mileage you will have to pay an additional fee.

Not all car finance deals include maintenance plans and they are usually an optional extra.

Maintenance plans are an additional fee that can be used to cover services and maintenance to your car. It’s worth working out whether you can afford to do this and whether it’s financially beneficial over the costs of paying maintenance yourself.

Keep in mind that some car finance deals expect you to return the car in good condition at the end of the term.

If you make all of your payments on time on your car finance loan, then it should have a positive effect on your credit rating. This will prove to lenders that you are reliable and will reflect well on you.

However, if you miss or fall behind on repayments it will have a negative effect on your credit rating and remain in your credit history for 6 years.

For more information read our guide on credit scores.