Hurdles like the global semiconductor chip shortage and economic instability haven’t shackled the consumer car finance market, with the latest data from the Finance and Leasing Association (FLA) revealing more than 2 million cars were purchased using finance options like personal contract purchase (PCP) and personal contract hire (PCH) in 2021.

Over the year, FLA lenders distributed more than £37 billion in car finance loans, helping Brits get behind the wheels of everything from the latest Teslas to second-hand Minis.

Of course, like any loan it’s important to have a good understanding of exactly what you’re committing to when taking out car finance. This means taking the time to understand the advantages and disadvantages of financing a car. Want to know more? Read on as we answer all your questions about the advantages and disadvantages of financing a car, with a goal to help you make educated decisions.

Advantages of financing a car

  • You can stretch your budget further

When considering the advantages and disadvantages of financing a car, budget is one of the biggest factors. Instead of scraping together cash to purchase a car outright, car finance options such as PCP and PCH allow you to stretch your budget much further. Initial deposits can be as low as 10% (with plenty of no-deposit options too) and allow you to spread out the rest of your loan over a period of two to four years, sometimes longer.

  • Fixed monthly payments

Most car finance loans include fixed monthly payments which make budgeting easy. You’ll know exactly how much will be coming out your bank account each month, making it easy to stay on top of your loan.

  • Options for every credit score

Unlike mortgages and credit cards, car finance is available to most Brits. Even if your credit score is less than ideal, it’s still possible to secure loans with great terms, conditions, and interest rates. Find out more in our complete guide to car finance with a poor credit rating.

Disadvantages of financing a car

  • You may be subject to mileage limits

Car finance loans often include mileage caps which can restrict how you use your car. These are common with PCP agreements, where you have the option to return the car to the lender at the end of the loan. If you want total freedom when it comes to mileage, car finance options like hire purchase (HP) can be a good alternative.

  • You don’t necessarily own the car outright

Many car finance loans use the vehicle as security, meaning you don’t own the car outright until you’ve paid all instalments. You may also need to settle extra costs such as balloon payments or penalties for extra mileage. For many motorists, this is one of the biggest disadvantages of financing a car.

  • Excess wear and tear can result in penalties

As well as penalties for exceeding your mileage limit, some car finance loans will add fees for wear and tear. Everyday wear and tear is fine but anything abnormal can incur fees. This can include anything from dents and scratches to ripped seat covers.

Tips for securing the best type of car finance

No matter what type of car you’re in the market for or the state of your finances, it’s important to understand a few key points when researching the advantages and disadvantages of financing a car.


First, you’ll need to understand annual percentage rate (APR). This is the interest rate you’ll pay over the lifetime of the loan. APR can vary significantly between lenders and is also impacted by factors like your credit score and deposit. Without a good rate, APR can be one of the biggest disadvantages of financing a car. That’s why it’s so important to shop around for the best deals!

Hidden fees

As a borrower, it’s your responsibility to gain a complete understanding of all fees and charges associated with your loan. Most lenders are relatively transparent, but it always pays to ask questions and do your homework. This is the best way to sign on the dotted line with confidence and ensure you don’t encounter any unwelcome surprises down the line.

Keep the big picture in mind

Rock bottom interest rates and ultra-low monthly payments are tempting but it’s important to keep the big picture in mind when it comes to car finance. Use variables like APR and repayment terms to calculate the total cost of your loan and paint a long-term picture of the advantages and disadvantages of financing a car. Generally, longer loans mean you’ll rack up more interest and ultimately, pay more for your car.

Ask for extras

If you don’t ask, you don’t get! For example, it’s not unusual for dealers to throw in free servicing for 12 months or extras like leather seats, roof racks or an upgraded sound system when selling new cars. Similarly, just because you’re purchasing a car on finance doesn’t mean you can’t push for a discount on the advertised price of the car. Of course, there are no guarantees but if you approach the situation with a smile and a good attitude, chances are it’ll pay off.

Enlist the help of a broker

There’s no shortage of car finance lenders in the UK and like all industries, some are legions better than others. Enlisting the help of a broker can help you sift through the options and secure the best deals.

With access to the largest panel of car finance lenders in the UK, My Car Credit matches you with the best loan based on your unique borrower profile. This personalised approach boosts your chances of success and helps secure you the best type of car finance. Connecting with a broker can also help you understand more about the advantages and disadvantages of financing a car and ultimately, make better choices.

Want to know more about the advantages and disadvantages of financing a car? We’re always available to answer questions via email or give us a call on 01246 458 810 to chat with one of our car credit advisors.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating


  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed


  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs


  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit


  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past


  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan

X monthly repayments of

Typical rate

Loan amount

Total payable




*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!