Car finance FAQs
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Below we've pulled together answers to some of the most popular questions about car finance.
If there's a question we've left unanswered or you can't find what you're looking for use the search above or get in touch with us.
Car finance is a credit agreement made between you and the lender which allows you to buy a car.
Car finance should be thought about in two stages:
Personal loan – This is one of the most common ways to finance your new car. You‘ll borrow money from your bank/building society etc. When you buy the car, you’ll get instant ownership.
To find out more take a look at our guide to car finance.
Personal contract purchase (PCP) – With this method, you’ll pay a deposit (around 10%), then you’ll have fixed monthly payments. This is ideal if you’re flexible with what happens at the end of the agreement. The car will belong to the finance company during your contract, and you’ll only be paying off the depreciation. This is usually the preferred option for purchasing a new car as the monthly payments tend to be lower. However, once your contract comes to an end you’ll have three choices:
- Pay the remaining value of the car to keep it
- Exchange the car
- Return the car to the supplier
For more information take a look at our guide to PCP.
Hire purchase (HP) - Similar to PCP, hire purchase requires a deposit and fixed monthly payments. The car is owned by the HP company. You’ll only be hiring it until you’ve made the final payment, after which you will own the car.
Take a look at our guide to hire purchase for more information.
Leasing - This option means you’re renting, and therefore will never have any ownership of the car. Unlike PCP, you won’t have the option to buy the car at the end of the contract. However, every two to three years you’ll be able to change the car you’re driving. This is a good way to drive cars that you usually wouldn’t be able to afford to buy. Effectively the payments you make only cover the car’s depreciation.
At Confused.com we’ll allow anyone to see if they’re able to get finance within minutes. You just need to give us some information, and we’ll allow lenders to carry out a soft credit search to see if they can offer you a good deal. This will not affect your credit rating.
To apply for car finance at Confused.com, you’ll need to enter some of your personal details alongside your budget and/or what car you want. This takes less than three minutes, and will enable our lenders to perform a soft credit search for hire purchase deals and personal loans.
Each option will display the amount you’ll pay each month, the exact APR, and how much the total cost of the loan will be.
If you choose an unsecured personal loan, this’ll be transferred to your bank account and you’ll be able to use it to buy your desired car.
If you choose a hire purchase option, you’ll need to provide the details of the car and of your approved dealer. The money will be transferred to the dealer and you’ll receive the deeds to the car when you collect it.
If you choose a PCP, after you have given the details of the car you would like, the dealers will give you a deposit and the amount you can borrow.
This will depend on how much they think the car will be worth when you’re finished with it depending on how many miles you’ll be doing or how much the dealer predicts the car will lose in value. This will be paid in fixed monthly amounts.
Once you’ve paid 50% of the amount payable, legally you have the right to voluntarily terminate (VT) your car finance agreement. Each finance company will have different terms and conditions. But providing you’ve kept up payments and paid a final agreed sum, you can give the car back and end your contract.
The car will have to be in a reasonable condition – if not, there may be some extra charges when you return it.
Representative APR is the figure companies use to advertise their rates. Once a credit check has been taken into consideration, the lender will decide whether you’re eligible for the representative rate or a different rate.
By law only 51% of people are actually required to receive the advertised rate. So once your information has been checked, you will ultimately get your exact APR – which will be the amount you actually end up paying.
Confused.com will only show your exact APR, so the price you will see is exactly what you’ll be paying, with no hidden extras.
A hard credit search would occur when you’re applying for a loan or credit card. These searches will show up on your credit profile and may affect your score, although in many cases only temporarily.
"Imagine a £10k car bought on finance over 12 months. It might sound great if you’re offered £1,000 off the ticket price, but if you're given a loan with an APR rate of 25% when you could have got a 5% loan then you'll still be out of pocket overall due to the difference in interest (by £750 to be precise - £11,250 vs £10,500)”
A guarantor loan is similar to an unsecured personal loan. The one difference is that the borrower is guaranteed by another person – the guarantor.
The guarantor effectively sponsors the loan by acting as backup to the borrower – in that they’ll step in to repay the loan if the borrower can’t.
A guarantor loan offers a solution to customers who have poor credit history, or haven’t yet got a credit history to speak of. They’re popular for borrowers who might have been turned down by traditional banks and lenders.
By repaying a guarantor loan on time, you’re able to improve your credit score. This is because your ability to pay a loan off demonstrates your creditworthiness.
Almost anyone can act as your guarantor, as long as they aren’t financially linked to you (eg a spouse). A guarantor could be a family member, friend or even colleague.
For your guarantor to be accepted, they’ll usually need to be aged between 18-75 with good credit history. Checks on your guarantor are usually identical to normal credit checks – they’ll need to provide bank statements, bank details and proof of ID.
The cheapest option would usually be a personal loan. There is no end of agreement charges for any damages or going over your agreed mileage, and the car is yours from right at the start of the agreement.
If you would like to know more about loans, our guide on unsecured loans vs secured loans may be able to help.
Finance is a great way to work out what you can afford and pay a fixed rate each month - unlike mortgage and credit card products, the rate isn’t variable.
This option gives people with a stretched income more options. By making our comparison tool as quick and easy to use with the actual amount you will be paying onsite, the customer will know instantly if they can afford the repayments.