Car finance
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Introduction to car finance
The term car finance covers several types of financial products you can take out when purchasing a car. Most deals require an initial deposit followed by set monthly payments.
By spreading the cost over time, it's a great way to avoid paying for a car all in one go. Much like other types of loan, interest rates tend to apply, as well as extra fees. This makes shopping around for the right deal vitally important.
If you're unsure whether personal contract purchase, hire purchase or an unsecured loan is the best option for you, take a look at our explanations below.
Not sure what finance is right for you?
We're here to help. This handy table should aid your decision.
Contract Purchase
Hire Purchase (HP)
Hire purchase or HP is an arrangement where you hire the car from a finance company until you’ve fully paid for it. The finance company own the vehicle until the final payment is made, after which time it’s yours to keep. Hire purchase tends to require a deposit usually 10% of the car’s value. The higher the deposit, the lower the monthly payments.
Personal Contract Purchase (PCP)
Personal contract purchase or PCP is similar to a hire purchase. You’re likely to be asked to pay an initial deposit, and then monthly payments for a set period. The higher your deposit, generally, the lower the monthly payments. Even with the deposit though, monthly payments are typically lower than you’d find with a hire purchase deal or a personal loan. This is because you'll be paying off the value of the depreciation of the car, not the full value of the car.
At the end of the agreement, if you decide you want to keep the car, you’ll need to pay what’s known as a ‘balloon payment’. This covers the cost of the vehicle and transfers ownership from the finance company to you. If you don’t want to keep the vehicle, you can give it back, or start a new PCP deal and get a new car.
Personal Loan
A personal loan sometimes called an unsecured loan, allows you to borrow a lump sum over a fixed term. This isn’t secured against anything. That means if you use a personal loan to pay for your car, you’ll own it outright from the day the money is transferred to the dealer. As such, you can sell the vehicle at any time, without needing to settle up with the finance company first. If you think this would be a better option for you then you may want to visit our page for a quote.
Why compare car loans with Confused.com?
Unlike many sites, once you’ve entered your details we’ll be able to show you the exact APR that you’ll be offered for your loan or hire purchase deal - what you see is what you get.
As well as showing you options for exact APR, we’ll show you providers who quote based on representative APR and display the likelihood of acceptance too. Our guide on representative APR vs exact APR explains the difference.
Knowing the exact APR means it’ll be easier to manage your budget and make sure you get the best deal.
If you'd like to learn more about the options available to you, our articles and guides section might have what you need.
You may also like to use our car finance calculator to help you get an idea of what your monthly repayments are likely to be.
Understanding your options
Everyone has a different financial situation, so there's no 'one size fits all' with financing your next car.
Before you start looking for a car loan, you'll need to think about a few questions, such as:
Once you've answered these questions, you'll be in a much better position to choose the best way to finance your next car.
Need more help? Take a look at our FAQs or our car finance jargon buster.
What you'll need to apply
Confused.com is a credit broker, not a lender. Our website makes it easy for you to compare a wide variety of car finance products, all from a range of trusted providers.
If you decide to buy through us, we get a small fee from one of these providers. Comparing with us costs you nothing!
And please note, the size of the provider’s fee doesn’t affect how we display our products.
Using Confused.com will not affect your credit rating as only soft searches will be carried out.
Your credit score
Whenever you're considering applying for a loan, it's always important to think about your credit file and credit score. It's also just as important to know how these can affect your financial situation and the difference between a soft credit check and a hard credit check.
Your credit rating or credit score is built from a number of bits of information. There's public information (examples of public information that can affect your credit score). And also data from financial service companies you've used for things such as credit cards, mortgages or previous loans.
Typically, someone who has a good credit score has a history of managing their general finances well and paying off debts and credit cards with time to spare. Meanwhile, someone with a bad credit score typically will be the opposite and will have a history of missed payments.
When taking out any financial product such as a mortgage, the company lending will check your credit score to analyse whether or not they'll want you as a customer. And on what terms they'll lend to you. Every time your file is looked at, it's recorded as either a hard or soft credit search.
Soft credit check
A soft credit search occurs when you or someone else looks up your credit file as part of a background check. Others checking your credit score could be a bank or a potential lender. Regardless, it's important to note that these soft searches are recorded but ultimately don't affect your credit rating.
Before a full credit application, most lending companies will want to pre-screen potential customers. This will usually take the form of a soft credit search and returns some basic, background information.
Hard credit search
A hard credit check is very similar to a soft credit check except this time, the search is marked on your credit report. This means that any future company that searches will find this and be able to see that you've applied for credit and whether that application was successful. Whenever you apply for a financial product such as a credit card, mortgage or even a mobile phone contract, these all carry out a hard credit check.
The reason why you need to be careful is because too many hard credit checks, especially over a short period of time, can affect your credit score. This can then affect your chances of getting credit in the future.
Will applying for a car loan affect my credit score?
When you get a quote from us, you'll see a number of products offered by our providers/lenders. To get to this stage, we run what's called a soft credit search.
This type of credit search doesn't affect your credit score and is also not shared with potential lenders, just the broker (us).
The only time your credit score and history is shared with a lender will be when you choose to purchase a car finance product and the lender you've chosen to purchase from will then conduct a full/hard credit check.
If you're concerned about your credit rating due to multiple debt payments, you might like to pay our debt consolidation page a visit.
Need more help? Take a look at our expert guides
Cancelling your car finance early
A look at your rights of voluntary termination.
Can I sell a car with outstanding finance?
What you need to know before you sell your car.
How to get car finance with bad credit
Got credit issues? There may still be hope.
Your car finance options explained
Confused about your options? We're here to help.
Personal contract hire explained
Everything you need to know about PCH.
Car finance traps to avoid
Common problems to watch out for.
Questions and answers
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