What Is PCP Car Finance? A Simple Guide to Personal Contract Purchase

Young woman showing elderly lady phone

At My Car Credit, we understand that when it comes to purchasing your dream set of wheels, budget can be a barrier. This is where Personal Contract Purchase (PCP) finance comes in. Flexible and affordable, the auto finance option is one of the most popular ways to purchase a car in the UK.

A new car on the driveway feels great. A huge upfront payment? Not so much. That’s where personal contract purchase (PCP) finance comes in.

PCP offers low monthly payments, lots of flexibility and the chance to drive a newer car more often. At the end of the term, keep it, swap it or hand it back. No pressure, just options. It’s no wonder PCP is one of the most popular auto financing options in the UK. 

Looking for a clear guide on PCP finance explained? Continue reading to get a simple, easy-to-understand breakdown of how PCP finance works and what it means for you, from deposits and balloon payments to hidden costs and the best ways to save money.

What is PCP car finance?

Personal contract purchase works differently from other auto finance options like personal contract hire (PCH) and hire purchase (HP). Instead of paying off the full cost of a car, PCP covers only depreciation (this is the difference between the car’s price today and its predicted value at the end of the contract).

  • Lower monthly payments than options like HP
  • More choice at the end of the contract. Keep the car, swap it or hand it back
  • Access to newer, more expensive cars for less

No big upfront payments

Like other finance options, PCP helps spread the upfront cost of getting behind the wheel. Instead of saving for months or dipping into savings, drivers pay an initial deposit and start driving straight away. Some deals even offer zero-deposit PCP, making it easier to upgrade without a large lump sum. Since monthly payments only cover depreciation, rather than the full cost of the car, upfront costs stay low while still providing access to newer models.

PCP works best for those who change cars frequently or want an affordable way to drive something newer. If you want personal contract purchase explained in a way that highlights affordability, this structure makes it clear why PCP is such a popular option.

PCP finance explained: how does finance work on a car?

Instead of paying off the full value of a vehicle, drivers cover depreciation only. This means lower monthly payments compared to options like hire purchase. At the end of the term, instead of owning the car outright, there’s a decision to make: 

  • Keep it
  • Trade it in for something new 
  • Hand it back and walk away

The process starts with an initial deposit, followed by fixed monthly payments over an agreed period, usually between two and four years. When the contract ends, a balloon payment (also called the Guaranteed Future Value) determines whether the car stays or goes. 

For those who like swapping into something fresh every few years, personal contract purchase keeps things simple – providing lots of options without long-term commitment.

A PCP deal breaks down into three key parts:

Deposit – the upfront payment

Unlike a traditional down payment that reduces the total loan amount, a PCP deposit helps cover the car’s depreciation.  

A higher deposit lowers the monthly payments and makes finance more affordable over time. Some dealers offer zero-deposit PCP deals, but these usually mean higher monthly costs. The deposit also reassures lenders, showing commitment to the agreement and improving approval chances.  

How much is a PCP deposit? 

Usually 10% of the total value of the car. So, if you’re buying a new Ford Fiesta worth £20,000 you’ll pay a deposit of £2,000 upfront. If you’re looking at a BMW X5 worth £70,000 your deposit will be £7,000. 

Can you get a PCP deal with no deposit?

Yes, some lenders offer zero-deposit PCP deals. But they’re usually reserved for applicants with excellent credit scores. Keep in mind that monthly payments increase without a deposit, because the entire finance amount is spread across the contract term. Skipping the deposit keeps upfront costs low but it also means higher long-term payments and potentially more interest paid overall. 

Just want PCP car finance explained simply? A deposit reduces the amount borrowed, which lowers monthly costs and the total interest paid.

What happens to the deposit?

The deposit isn’t refunded at the end of the agreement. That said, if the car is worth more than the Guaranteed Minimum Future Value (GMFV) at the end of the contract, this difference can go towards the deposit on a new PCP deal.

Is it worth paying a bigger deposit?

While a larger deposit lowers monthly payments, it doesn’t always make financial sense. Paying too much upfront ties up cash that could be used elsewhere, and since PCP isn’t structured for outright ownership, a big deposit won’t necessarily bring major benefits. If keeping the car at the end is a priority, some drivers prefer to spread costs evenly and put money aside for the final balloon payment instead.

Can a part-exchange be used as a PCP deposit?

Yes, a trade-in vehicle can be used towards the deposit on a new PCP deal. If the car being traded in is worth more than the settlement figure, the difference can go towards the next agreement, lowering the amount borrowed. This can be a great way to upgrade without needing a lump sum upfront.

The amount you borrow 

Unlike HP, where the loan covers the full cost of the car, Personal Contract Purchase only finances a portion of the vehicle’s value. The amount borrowed is based on how much the car is expected to depreciate over the course of the agreement, not the car’s total price.

How is the PCP loan amount calculated?

PCP finance is structured around three key figures:

  • The car’s price today
  • The Guaranteed Minimum Future Value (GMFV)
  • The deposit paid upfront

The difference between the purchase price and the GMFV (minus any deposit) is what gets financed. 

For example, a £30,000 car with a GMFV of £15,000 after three years means the car is expected to lose £15,000 in value over the contract term. If a £3,000 deposit is paid upfront, the amount borrowed would be:

£30,000 – £15,000 – £3,000 = £12,000 financed

This £12,000 loan is then spread across monthly payments. Explaining PCP finance simply – borrowers only pay for the car’s depreciation, rather than its full value.

How depreciation affects monthly payments

Depreciation plays a major role in PCP affordability. Cars that hold their value well (think premium brands like BMW, Audi or Lexus) often have lower monthly payments because the gap between the initial price and the GMFV is smaller. On the flip side, payments can be higher for vehicles that lose value quickly, as the finance company takes on greater risk.

This means two cars priced at £30,000 but with different depreciation rates could result in very different PCP payments:

Car A (low depreciation)

GMFV of £18,000 after three years. 

Borrowed amount: £30,000 – £18,000 = £12,000

Car B (high depreciation)

GMFV of £12,000 after three years.

Borrowed amount: £30,000 – £12,000 = £18,000

Despite the same purchase price, Car B costs £6,000 more to finance, meaning higher monthly payments.

How to reduce the amount borrowed

Drivers looking to cut monthly costs have a few options:

  • Choose a car with strong resale value – A higher GMFV means borrowing less.
  • Increase the deposit – A larger upfront payment reduces the amount financed.
  • Opt for a shorter term – Lowering the contract length can improve the GMFV.
  • Negotiate a lower interest rate – A lower APR means smaller finance charges.

The balloon payment

A balloon payment is the final lump sum due at the end of a PCP agreement. Unlike HP, where monthly payments gradually cover the full cost of the car, PCP leaves a significant balance unpaid until the final stage of the contract. This unpaid balance is called the Guaranteed Minimum Future Value (GMFV) and is an estimate of the car’s worth at the end of the agreement.

This model keeps monthly payments low but leaves drivers with a decision at the end of the term. Three options are available:

  • Return the car – Walk away with no further costs
  • Buy the car – Make the balloon payment
  • Part-exchange – Trade it in for a new deal

What if the car is worth more than the balloon payment? Good news. If the car holds more value than expected, the extra amount can go towards a new finance deal.

We’ll cover all three in more detail below!

How does PCP work at the end of the term?

PCP finance explained – it keeps things flexible right up to the final stretch. When the contract ends, there’s no pressure to stick with one path. Drivers choose what works best for them. Whether it’s handing the car back, keeping it or using it to fund a newer model, the options stay open. 

Here’s how it plays out:

Return the car

Nothing more to pay with this option. Just hand the car back to the lender and walk away. 

Best for: Drivers who like to upgrade their car regularly or want flexibility at the end of the contract.

No extra cost if: The car stays within mileage limits and remains in good condition.

Possible charges: Exceeding mileage limits or returning the car with excessive wear and tear could result in fees.

Buy the car

Want to keep the car? You’ll need to cover the balloon payment in full. This figure is set at the start of the agreement and reflects what the car should be worth at the end of the term. No surprises. Just a final bill standing between you and outright ownership.

Best for: Drivers who want long-term ownership or find the car’s value higher than the agreed GMFV.

No more finance payments: Once the balloon payment is settled, full ownership transfers to the driver.

Consider the cost: The final payment can be hefty. Some drivers choose to refinance the balloon payment with another finance deal to spread the cost.

Part-exchange

If the car ends up worth more than the GMFV, the difference can go towards the deposit for a new PCP deal. A handy way to roll into a newer model without a big upfront cost.

Best for: Drivers who like upgrading without saving for a large deposit.

Equity boost: If the car’s market value exceeds the GMFV, the extra amount reduces the deposit on a new PCP deal.

No guaranteed profit: If the car holds less value than the GMFV, no equity remains for a new deal.

Choosing the right PCP exit strategy

Flexibility sits at the heart of PCP. No long-term commitment, no pressure to stick with the same car. Just options that fit different needs. Whether it’s upgrading, keeping or trading in, drivers stay in control.

  • Best choice for frequent upgraders? Hand the car back and start a new PCP deal.
  • Best choice for keeping the car? Cover the balloon payment or refinance.
  • Best choice for rolling into a new deal? Trade the car in and apply the equity towards a fresh PCP agreement.

Benefits of PCP 

There’s lots to love about PCP finance. Here’s a closer look at the benefits:

Lower monthly payments

PCP agreements focus on the car’s depreciation rather than its full cost. Instead of covering the entire value, payments go towards the difference between its original price and its expected worth at the end of the contract. With smaller monthly costs than options like hire purchase (HP), this keeps budgets in check while keeping options open.

More car for your budget

PCP stretches budgets further. A standard finance deal might cover a reliable runaround, but PCP offers access to something newer, sleeker or better equipped. A mid-range trim instead of the base model, a hybrid instead of petrol, leather seats instead of cloth. For drivers after the latest comfort or tech without breaking the bank, PCP makes it possible.

Flexible at the end

PCP offers more than one way out. Pay the balloon payment and keep the car. Trade it in and roll any equity into a fresh deal. Or hand it back and walk away. No pressure to commit upfront. No long-term ties. Just options that suit different circumstances.

Smaller upfront costs

PCP explained – it makes car finance more accessible, with lower deposits, or sometimes none at all. No need to drain savings or hold off for months to build a deposit. Just a manageable way to get behind the wheel.

Equity potential

If the car’s value sits higher than the GMFV, the difference rolls into the next deal as a deposit. A model with strong resale value means a better starting point for the next agreement. While never guaranteed, this can work in favour of drivers looking to upgrade without saving separately for a deposit.

Drawbacks of PCP

PCP has some great benefits but it’s important to understand the full picture before committing. Here’s a look at some of the potential drawbacks:

Mileage restrictions

Every PCP agreement includes a mileage limit. Drive beyond it, and fees apply per extra mile. The cost might seem small per mile, but over the years, it adds up. Best to estimate mileage honestly at the start rather than face a surprise bill later.

Condition requirements

Normal wear and tear are expected, but anything beyond that might mean extra charges. Scratches, dents, scuffed alloys or a coffee-stained interior could lead to fees. Keeping the car in good nick avoids unexpected costs at the end of the contract.

Final payment required to own the car

PCP doesn’t include ownership at the end unless the balloon payment is settled. Drivers wanting to keep the car need to cover this amount, often requiring extra savings or a refinancing deal.

Total cost may be higher

Interest applies not just to the borrowed amount but also to the balloon payment. This means, over time, the total amount paid could exceed what a similar car would have cost with an outright purchase or HP. Weighing up affordability against flexibility is key. 

How to cut your monthly PCP car finance payments

PCP already stands out for its lower monthly payments. But with a bit of strategy, those payments can shrink even further. Here’s how to make PCP even more affordable.

Increase the deposit

A bigger deposit means borrowing less from the lender. Less borrowing leads to smaller monthly payments, keeping costs manageable over time. Most PCP agreements require at least 10% upfront, but putting down more trims down repayments even further. Worth considering if savings allow, but balancing affordability is key. No point in sinking all available funds into a deposit if it leaves nothing for running costs.

Choose a car with slow depreciation

Cars lose value over time, but some hold onto their worth better than others. Luxury brands, electric vehicles with strong demand and popular models tend to retain value, making them better suited to PCP deals. A higher resale value means a lower balloon payment at the end, keeping costs lower throughout the contract. Checking resale trends before picking a car can save a fair bit over the term of the deal.

Extend the contract length

PCP agreements usually run for two to four years, but stretching to five years spreads the cost further. Monthly payments drop, making it easier to budget. A longer contract does mean paying more interest overall, but for those prioritising lower monthly outgoings, it’s a sensible trade-off. Don’t forget, keeping within the expected mileage limit is important! Going over could mean extra charges, even with a longer term.

Look for low APR deals

Interest rates play a big role in the overall cost of PCP finance. A lower APR reduces the total amount paid over time, so it’s worth shopping around to find the best deals. Some dealerships and manufacturers offer promotional APR rates at certain times of the year, so timing a deal well can also mean decent savings.

What you need for PCP finance

Before getting started with a PCP deal, lenders check a few key details to make sure applicants meet the requirements. Nothing too complicated but having everything in order speeds up the process. Here’s what’s needed:

  • Personal details – Full name, date of birth and residential address history (usually covering at least three years). Lenders like stability, so a consistent address history helps.
  • Employment details and income – Current employer, job role and income details. Self-employed? Some lenders ask for tax returns or bank statements as proof of earnings.
  • Bank details – Account number and sort code for setting up the monthly payments. Some lenders also check banking history to assess financial stability.
  • Identification documents – A valid UK driving licence or passport confirms identity. You might also be asked for proof of address, like a recent utility bill or council tax statement.
  • Credit history check – Lenders run a credit check to see past borrowing behaviour. A strong credit score helps unlock better rates, but options exist for those with less-than-perfect records.

With these details ready, the PCP process moves along smoothly. A bit of prep upfront makes all the difference.

PCP vs. other auto finance options

Still not sure if PCP is your ideal route? Now we’ve got PCP finance explained, let’s compare it to other options to get a better understanding of the pros and cons:

Hire purchase (HP)

HP agreements let you spread the cost of the car over a set term, but instead of options at the end of the agreement you own the car outright. It’s like paying off a mortgage and owning your home when the final instalment is made.

Personal contract hire (PCH)

PCH agreements involve leasing a vehicle throughout the duration of a contract. Unlike PCP and HP loans, PCH doesn’t involve borrowing money for car ownership. Instead, you initiate the leasing agreement with a non-refundable deposit and then make monthly ‘hire’ payments that give you use of the car. At the end of the contract, you’ll return the vehicle without the option to purchase it and become the outright owner. It’s important to note that PCH agreements often come with restrictions, including mileage limits and caps on acceptable wear and tear.

Personal loan

With a personal loan, you borrow a lump sum to purchase the car and own it from day one. Interest rates are usually significantly higher for personal loans.

Why choose My Car Credit for PCP finance?

At My Car Credit, we’re your trusted co-pilot when it comes to securing the best PCP finance deals. Why choose us for PCP finance?

  • Expertise: Our team has the knowledge and experience to guide you through the entire PCP process, from start to finish. If you need PCP finance explained, we have your back.
  • Variety: We work with a wide range of lenders to offer you the best PCP deals. Worried about having car finance declined? As well as high street banks, we partner with smaller lenders who can help you get finance, even if your credit score is less-than-perfect.
  • Choice: As well as partnering with a wide range of lenders, we offer a huge amount of choice when it comes to cars. No need to limit yourself to particular makes and models. We pride ourselves on helping every client secure the keys to their dream car, whatever that might be. It’s like having access to a huge showroom of cars, all in one place.
  • Flexibility: We tailor our PCP agreements to suit your specific needs, offering you a good amount of flexibility when it comes to things like deposit size, contract length and vehicle options.
  • Support: Need your Personal Contract Purchase explained? We’re here to answer your questions, provide guidance and make your PCP journey as smooth as possible.

Ready to get behind the wheel? Give us a call on 01246 458 810 to find out more about PCP finance options or email us at enquiries@mycarcredit.co.uk for a speedy response.

Frequently asked questions about PCP

What does PCP stand for?

Personal Contract Purchase.

Is PCP car finance a good idea? 

PCP works well for low monthly payments and flexible choices at the end.

What if I want to end my PCP car finance contract early?

Early termination is possible but may include settlement fees.

How does PCP work at the end of the term?

The car can be returned, traded in or bought outright.

What are the risks of PCP car finance?

PCP keeps things flexible, but it’s not without its pitfalls. Go over the mileage or hand the car back with a few too many scuffs, and expect extra charges. That balloon payment at the end? Not exactly pocket change. And if the car’s value takes a nosedive, there’s no leftover equity to put towards your next set of wheels.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Return to Car Finance Options
Return to search

Related articles

How to Get Car Finance with Poor Credit

Read More

How to Strengthen Your Eligibility for Car Finance

Read More

How to Refinance a PCP Balloon Payment

Read More
My Credit Rating

Excellent

  • 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

Good

  • 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

Fair

  • 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

Poor

  • 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

Bad

  • 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
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 10.9%, annual interest rate (fixed) 10.87%, 47 monthly payments of £191.50 followed by 1 payment of £201.50 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,702, total amount payable £9,202.

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.
Reviews icon
Trustpilot logo with five green stars indicating a 5-star customer rating.
Trustpilot

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!

Email
or call 01246 458 810

What is the Average Car Loan Interest Rate?

Two people on a bench looking at a phone

Flexible and affordable, auto finance is one of the most popular ways to purchase a car in the UK. A good understanding of the average car loan interest rate is one of the best ways to make smart and informed decisions when choosing a lender. 

In this article, we’ll take a closer look at benchmark car loan interest rates in the UK, as well as exploring the difference between the Bank of England rate, cash interest rate and APR (annual percentage rate).

Britain’s relationship with car loans

Brits love to borrow. According to the Finance and Leasing Association (FLA), over 90% of all cars are bought on finance in the UK, and in the twelve months leading to May 2024, over two million cars were purchased on finance.

With so many benefits on the table, it’s no surprise auto finance is such a popular option in the UK.

What is the average car loan interest rate in the UK?

Different lenders will offer different interest rates for car loans – you can compare between the lenders My Car Credit works with to find the right rate for you.

Bank of England interest rate

The Bank of England interest rate – also known as the Bank Rate – affects the industry rates that lenders charge for different types of credit, including car finance.

It’s reviewed eight times a year to reflect the UK economy. As of February 2025, the Bank of England interest rate is 4.5%.

Most lenders take this base rate, then add to it based on a variety of factors. It’s rare to find any type of loan, whether it’s a home mortgage, cash loan or auto finance agreement, that uses the base interest rate stated by the Bank of England.

Cash interest rate

This is the interest rate the lender chooses to use on the principal loan amount. For example, if you borrow £10,000 at an interest rate of 6%, you’ll be paying an additional £600 in the first year. It describes the cost of borrowing the money itself and doesn’t include any fees or charges added by the lender. Using a car finance calculator is a quick and easy way to crunch the numbers.

Annual percentage rate (APR)

APR offers a more comprehensive view of the total cost of your loan. As well as the cash interest rate it also includes extra fees and charges. For example, if you’re offered a car loan with a cash interest rate of 7%, but the APR is 12%, you’ll be paying 5% in fees.

APR is designed to provide transparency to borrowers and make it as easy as possible to calculate the total cost of your loan. Comparing APRs offered by different lenders is one of the best ways to secure a good deal on car finance.

What is a good APR rate for a car?

APR varies significantly between lenders. That said, it must be disclosed prior to signing any paperwork, so you can shop around and compare these rates when you’re looking for car finance.  

Remember that there’s a difference between representative APR and exact APR.

In the UK, borrowers with excellent credit scores should aim for an APR of 10.9%. This is considered a good average car loan interest rate, allowing you to enjoy the benefits of auto finance without absorbing too many extra fees or charges.

That said, this rate will be determined by your individual circumstances, especially your credit score. The lower your credit score, the higher your APR is likely to be. There are other ways to reduce the APR on a car loan too, including applying with a guarantor and choosing a shorter repayment term.

If your credit score is less than ideal, don’t forget that My Car Credit helps with poor credit car finance.

Fixed vs variable interest rates: What’s the difference?

A fixed interest rate remains constant for the entire term of a loan, meaning your monthly payments stay the same. Most auto loans in the UK come with a fixed APR.

A variable interest rate means your monthly interest payments can change, so they’re less predictable.

Choose an auto loan with a fixed interest rate if you want to know how much you’ll pay each month and don’t want to be affected by fluctuating interest rates. Be aware that fixed rates tend to be a bit higher than variable interest rates.

A variable interest rate makes it easier to switch deals or providers early compared to a fixed interest rate. However, your payments will be less predictable, making it harder to budget.

Is a low APR always the best deal?

Low APR means you’ll pay lower average percentage rates compared to the rates on standard auto loans. It’s ideal for buyers with higher credit scores. 

However, always do your diligence and read the fine print before jumping for low APR auto finance. Sometimes these offers can come with hidden fees like a minimum deposit requirement, or even vehicle usage restrictions. 

You should also understand your total loan cost and ensure your lender is totally trustworthy before agreeing to a low APR deal.

If you have questions about whether a low APR deal is right for you, you can always contact our friendly team of Car Credit Specialists with your questions and concerns.

Get a great car loan deal with My Car Credit

Why settle for an average car loan interest rate when you could unlock an even better deal? 

At My Car Credit, we’re committed to helping Brits secure best-in-class APR, with a representative rate of 10.9% – though rates will vary depending on your unique circumstances.

Unsure what kind of APR you might benefit from? Fill out our online form to get a no-obligation quote in minutes and discover the kind of rates and terms you can secure with a car loan from My Car Credit.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Return to Your Credit Profile
Return to search

Related articles

Tips for Securing Affordable Used Car Finance Monthly Payments

Read More

What Criteria Poor Credit Car Finance Lenders Look for in an Application

Read More

How Long Does It Take to Get Your Credit Score Up?

Read More
My Credit Rating

Excellent

  • 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

Good

  • 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

Fair

  • 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

Poor

  • 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

Bad

  • 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
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 10.9%, annual interest rate (fixed) 10.87%, 47 monthly payments of £191.50 followed by 1 payment of £201.50 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,702, total amount payable £9,202.

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.
Reviews icon
Trustpilot logo with five green stars indicating a 5-star customer rating.

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!

Email
or call 01246 458 810

Why Was I Denied a Car Loan with Good Credit?

Woman with child looking at her phone

A good credit score can feel like a gold star on your financial history report. But unfortunately, a good credit score doesn’t guarantee approval when it comes to car loan applications. If you’ve been denied a car loan with good credit, this article is for you.

Below, we go into more detail about why a good credit score isn’t the be-all-and-end-all for car loan applications. We also take a look at how to overcome the hurdle, and what you can do to increase your chances of securing finance with a trusted lender.

What is a credit score?

Before we start, it’s important to define what a credit score is and why it matters. Basically, a credit score measures the overall health of your financial situation. A high score presents you as a reliable and trustworthy borrower, while a low score indicates a higher level of risk and an increased chance of defaulting on your loan. The higher your score, the more appealing you are to lenders.

Scorecards are used to calculate your credit score and create an overall picture of your borrowing behaviour. Information like your credit card repayment history and previous credit applications, as well as factors like your electoral roll status and address history, can affect your credit score. That said, your credit score isn’t the only factor considered by lenders when assessing car loan applications. This means you may be denied a car loan with good credit. 

Good vs poor credit history with Equifax, Experian and TransUnion

In the UK, three major platforms are used to calculate credit scores – Equifax, Experian and TransUnion. All use a different number system, so don’t worry if your credit score varies between platforms.

  • Equifax: 0 – 1000
  • Experian: 0 – 999
  • TransUnion: 0 – 710

Experian classes 881-960 as good, while TransUnion’s threshold is 604-627 and Equifax goes as low as 420-465. As you can see, a good credit rating with one credit agency doesn’t mean you’re always classed as low risk. It depends which agency is used by each lender.

What doesn’t affect a credit score?

Credit scores are used to assess your financial history and give lenders an idea of your reliability when borrowing money. They’re not designed to reflect your overall wealth or purchasing power. The following criteria aren’t considered when calculating your credit score, however they may help explain why you were denied a car loan with good credit.

  • Student loans
  • Savings account balances
  • Employment history
  • Parking tickets or driving offences
  • Criminal record
  • Medical record

Reasons why you may have been denied a car loan with good credit

If you’ve been denied a car loan with good credit, here are some common reasons to consider. They don’t affect your credit score directly, but they can have an impact on the final decision of the lender.

Financial links

It’s important to understand that you’re not necessarily the only person assessed when applying for car loans. Financial connections to irresponsible borrowers, such as partners, family members or flatmates, can have an impact on your success rate and may help explain why you’ve been denied a car loan with good credit.

For example, if your legal partner has a lacklustre borrowing history and a poor credit score, this can impact your chances of a successful application. Even if you’re no longer together, they’re still considered a financial risk. Similarly, if you once shared utility bills with an irresponsible ex-flatmate, their borrowing behaviour can have an impact on your car loan application.

These types of financial links won’t affect your personal credit score, but they may be considered by lenders when assessing applications and calculating the overall risk factor. Lenders may check the credit reports of these individuals and use data to make a final decision on whether to approve or deny your application.

Check the Financial Associations section in your Credit Report to find out if you have any links. Depending on whether the connection is still active, it may be possible to submit a disassociation request and remove the person from your Financial Associations list.

Employment status and salary

The ability to repay your loan is a major factor considered by lenders. They won’t hesitate to follow up on employment and salary information stated in your application, and if the numbers don’t match up, your loan may be declined. This means that even with a stellar borrowing history, you may be denied a car loan with good credit if your employment status and income can’t be verified.

Another issue in this respect comes when you’re self-employed. While it’s great to work for yourself, this can negatively impact your ability to get car finance because it’s less secure than income from an employed position. Working for yourself, your salary can fluctuate month to month and year to year, making it harder for finance companies to assess affordability – which brings us onto…

Affordability

One of the most important factors for any finance company is affordability. Lenders want to know whether you can afford the repayments based on your current circumstances. While your credit rating reflects your history with finance companies, it’s also important to consider your incomings and outgoings.

As well as your salary, they’ll look at existing financial commitments like mortgage payments, utility bills and personal loans. If you’re already in financial difficulty, regardless of your credit history, you could be refused car finance.

Inconsistency in applications

Lenders don’t just check your current application. They may also cross-reference it with previous applications. Inconsistencies can raise instant red flags and may explain why you’ve been denied a car loan with good credit. For example, an application that states a £100,000 salary preceded by an application that states a £30,000 salary may be flagged.

Existing debt

Current debt isn’t factored into your personal credit score. However, it may be considered by lenders when assessing car loan applications. Ultimately, they want to be sure you can repay the amount you borrow. For example, if you apply for a £50,000 car loan but have credit card debt of £10,000 and a home mortgage of £300,000, your application may be flagged as high risk. It doesn’t necessarily mean you’re ineligible for a car loan, but it is something to consider when investigating why you’ve been denied a car loan with good credit.

What to do if you’ve been refused car finance

At the end of the day, no application is guaranteed, regardless of how high your credit score is. Lenders will always scrutinise applications and consider a variety of criteria. It’s important to understand exactly what goes into the decision making process to maximise your chances of success.

Review your application

If you’ve been refused car finance, the simplest thing you can do is review your car finance application. Look for any inaccuracies such as your address, salary and other financial information. Many lenders may point these out to you to help you get car finance.

Apply for a cheaper deal

Another simple trick is to apply for a cheaper deal that suits your personal circumstances. You could find a cheaper car, which would mean lower monthly payments.

You can also check the different types of car finance available.

Pay off existing debt

If you have lots of existing credit agreements, you might want to consider paying some off before applying for car finance – if you have the means to do so, of course. This could reduce the risk for lenders, as you’ll be in a better position with fewer outgoings and only one lender (or a select few) to repay.

Denied a car loan with good credit? We can help!

Being denied a car loan with good credit is frustrating. The good news is, we’re here to help. At My Car Credit, we have access to one of the largest and most diverse lending panels in the UK. This helps us to match your application with a wide range of trusted lenders, instead of the usual high street banks.

My Car Credit is fronted by a dedicated team of experts who can help you understand more about car finance eligibility and get to the bottom of why you’ve been denied a car loan with good credit. It’s this commitment to success that helps our customers get behind the wheels of their dream cars faster.

To discover how My Car Credit can help you obtain the right car finance, check out our online calculator to crunch the numbers on financing your next car.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Return to Your Credit Profile
Return to search

Related articles

Tips for Securing Affordable Used Car Finance Monthly Payments

Read More

What Criteria Poor Credit Car Finance Lenders Look for in an Application

Read More

How Long Does It Take to Get Your Credit Score Up?

Read More
My Credit Rating

Excellent

  • 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

Good

  • 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

Fair

  • 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

Poor

  • 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

Bad

  • 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
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 10.9%, annual interest rate (fixed) 10.87%, 47 monthly payments of £191.50 followed by 1 payment of £201.50 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,702, total amount payable £9,202.

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.
Reviews icon
Trustpilot logo with five green stars indicating a 5-star customer rating.

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!

Email
or call 01246 458 810

Can I Get a Car Loan Instantly Online?

Woman with laptop using her phone

When it comes to purchasing a vehicle, there are a number of ways to do so. Two of the most popular means are car loans and car finance. The type of finance agreement that’s right for you will depend on a number of things, including your credit rating and the speed with which you want the agreement to be approved.

Can I get a car loan online?

A car loan is a kind of personal loan that’s strictly for the purchase of a vehicle. Car loans are secured, and the amount that you borrow as well as the interest rate is typically dictated by the price of the car.

Finding a car loan can be done online, and it’ll typically only take minutes to fill out an application form. However, securing a car loan might not be quite so speedy.

How long does it take to secure a car loan?

The initial submission of a car loan application form can take mere minutes, but locking down that loan can take longer. It’s also worth noting that banks and credit unions will typically take longer to process applications than online lenders. The turnaround time will vary between providers, as will the length of time that you might wait for your loan to come in.

There a number of other factors that will impact how long it can take to secure a car loan…

Your credit score

Applicants for a car loan usually have to have a strong credit rating when applying – and if you’re opting for pre-approval of a car loan, having a good credit score is essential, as a hard credit check will be performed.

That’s why it’s worth doing your homework in advance to ascertain whether or not the lender to which you’re applying will accept less than ideal credit ratings, as well as determining whether your report has any errors or lists incorrect information. If you’ve got a poor credit rating, car finance may be a more accommodating option for you over a car loan.

Lack of documentation

When applying for either a car loan or car finance, you’re going to have to provide some personal information, which can also include documentation. Lacking these – or not submitting them in time – will delay your application, so it’s worth having these to hand.

Not doing your homework

As already detailed, you want to look over your credit rating in advance of your application to ensure there are no errors, but it’s also worth researching the car loan provider. Many institutions, for example, may have minimum income requirements for applicants, or only provide loans for specific vehicles. If you apply without doing your homework on the car loan lender, you could waste your own and their time.

Car loan or car finance?

If you have questions about whether a car loan or car finance is right for you, My Car Credit are here to help. You can contact us on enquiries@mycarcredit.co.uk today for help and advice.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Return to Car Finance Options
Return to search

Related articles

Check for car finance without affecting your credit score

Read More

How Much Car Finance Do I Qualify For?

Read More

PCP vs HP – What’s the Difference Between Them?

Read More
My Credit Rating

Excellent

  • 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

Good

  • 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

Fair

  • 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

Poor

  • 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

Bad

  • 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
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 10.9%, annual interest rate (fixed) 10.87%, 47 monthly payments of £191.50 followed by 1 payment of £201.50 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,702, total amount payable £9,202.

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.
Reviews icon
Trustpilot logo with five green stars indicating a 5-star customer rating.
Trustpilot

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!

Email
or call 01246 458 810

Is car finance easier to get than a loan?

Woman driving at sunset

Car finance, personal loans – when it comes to purchasing a car, there are a number of ways that you can finance it. But is car finance easier to get than a loan, and how do these agreements differ? In this article, we’ll provide answers to all these questions, helping you to get in the driver’s seat (literally and metaphorically)!

Car finance vs. a loan – what’s the difference?

First up, you need to understand the difference between a loan and car finance. A personal loan involves borrowing money from a bank or other financial institution. You’ll typically repay this over a pre-determined series of monthly instalments (plus interest). Meanwhile, a car loan is a type of personal loan, but is for the specific use of purchasing a vehicle (as the name suggests).

Car finance is when either a financial institution or lender gives you a loan to finance your car. You’ll then pay this loan off with a series of monthly instalments (plus interest).

There are various different kinds of car finance. The right kind of car finance will vary between drivers, all of whom have different needs and preferences – for example, whether or not you want to be the vehicle’s owner, whether you can manage mileage and other caps, whether the agreement is secured, and the length of finance term and interest rate that you may face.

There’s a real difference between these types of car finance, but the two most popular are HP (hire purchase) and PCP (personal contract purchase).

Car finance vs. a loan – which is easier to secure?

A personal loan

There are advantages to funding a car with a car or personal loan. If you choose to do so, you’ll be seen as a cash buyer by a dealer, meaning you’re unlikely to face a deposit or any balloon payments. Unlike certain car finance agreements, personal loans are unsecured, meaning that you don’t have to put up any assets in order to secure them. With a personal loan, you’ll also be the legal owner of the vehicle, meaning that you can sell it whenever suits you.

When it comes to personal loans, it may be tempting to opt for longer repayment schedules, but be aware that this does mean you’re going to be paying higher interest costs overall as a result. It’s important to be reasonable in establishing your loan period, keeping monthly payments affordable whilst sticking to the shortest loan term you can get.

Whilst you can secure personal loans from a variety of banks and institutions, the sheer availability of loans might make shopping around to find the best one for you feel overwhelming. Typically, online car finance providers like My Car Credit will be able to do that work for you, providing a no-obligation quote that takes account of your needs and circumstances in mere minutes.

Be aware that personal (or car) loans will be credit score-contingent. Applicants with higher credit scores are going to be favoured more, and there’ll be less chance of securing a loan if your credit score is poor. For those of you who sit in this category and are looking for ways to finance a car, it’s likely to be easier to secure car finance than a loan.

Car finance

So, is car finance easier to get than a loan? Depending on your credit score, it may be easier to secure car finance than a personal loan. Many car finance providers like My Car Credit can help you to find car finance even with a poor credit rating, and initial credit checks tend to be soft searches – unlike with a personal loan.

The process of finding and securing car finance is also significantly quicker than when trying to locate a personal loan. Online application processes make your search quick and easy. They’ll also provide you with an almost immediate sense of the kind of finance term you may be eligible for.

Bear in mind, too, that because car finance is often a secured loan – meaning that the car is used as collateral – it can be easier to get than a personal loan. However, usually you will have to pay a deposit (typically around 10%), and if you fail to make your repayments in a timely manner, you’ll lose the car.

Start your car finance journey today

If you’re looking for an easy, flexible and affordable way to purchase a vehicle, get in contact with My Car Credit today on enquiries@mycarcredit.co.uk. We can discuss your car finance needs and help you find an agreement that suits you.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Return to Car Finance Options
Return to search

Related articles

How Many Years in a Car Loan Term?

Read More

Can You Get Cars on HP with No Deposit?

Read More

What is a Balloon Payment on a Car Loan?

Read More
My Credit Rating

Excellent

  • 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

Good

  • 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

Fair

  • 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

Poor

  • 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

Bad

  • 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
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 10.9%, annual interest rate (fixed) 10.87%, 47 monthly payments of £191.50 followed by 1 payment of £201.50 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,702, total amount payable £9,202.

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.
Reviews icon
Trustpilot logo with five green stars indicating a 5-star customer rating.
Trustpilot

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!

Email
or call 01246 458 810

What Does ‘Finance’ Mean When Buying a Car?

Woman on phone sat on some steps

When it comes to car finance, there’s a lot of jargon and acronyms, and it’s easy to find yourself questioning what each finance agreement really means.

This post aims to help you get to grips with what different types of finance actually mean when buying a car, and how they work. Once you’ve understood the different kinds of agreements available, you’ll be on your way to securing a car loan quote that will work for your circumstances.

So, what does ‘finance’ mean when buying a car? Read on to learn more…

What does ‘finance’ mean when buying a car?

In essence, car finance makes the purchase of a car more affordable. It’s a credit agreement between you and the lender, allowing you to make full use of the vehicle whilst paying it off in cost-effective monthly instalments according to a pre-agreed schedule. The amount you pay off will also include additional interest on top.

What are the different kinds of car finance?

The right car finance for you will depend on the kind of agreement and terms that you’re looking for, as well as your own driving preferences and needs.

Car loan

A car loan is a type of personal loan but is specifically designed for use on vehicles.

With a car loan, you borrow the money from either a bank or building society. Once you’ve bought the car, you are its outright owner. You’ll repay the car loan over time via instalments, with added interest. Typically, a car loan is more likely to be granted to those with a good credit score – there are other kinds of car finance available for those with poor credit ratings.

Personal Contract Purchase (PCP)

Do you like mixing up the vehicles you drive? Are you happy sticking to mileage caps or paying excess fees for any vehicular wear and tear? Would you like flexibility in choosing whether or not to own the vehicle at the termination of the agreement? Then PCP is potentially the car finance for you. In fact, PCP is the most popular kind of car finance because of its low monthly repayments and flexibility.

With PCP car finance agreements, you’ll pay a deposit and monthly instalments (plus interest). The larger your deposit is, the lower these payments will be. These payments are typically lower than other kinds of car finance as you’re only paying for the car’s depreciation in value during the time that you’re using it.

You can also choose whether or not you want to own the car once you’ve fully paid off the finance. If you do, you’ll pay a final balloon payment to make up the remaining value of the car. If not, you can hand the car back to the dealer with nothing more to pay. Be aware that you won’t own the car unless you opt to do so at the agreement’s termination.

Hire Purchase (HP)

Hire purchase car finance is similar to PCP, but a little more straightforward. You’ll typically make a deposit of around 10% with HP finance, then make fixed monthly payments according to a pre-determined schedule. Repayment terms can be relatively flexible, and there are often competitive interest rates with HP finance.

Like with PCP, you won’t own the vehicle until you’ve made the final repayment of your agreement, but you can opt to do so with a final balloon payment. After this, you can choose to part exchange, sell or keep the car. However, unlike PCP, you won’t usually face mileage caps, so HP finance may be preferable for you if you’re regularly making long journeys.

Personal Contract Hire (PCH)

PCH car finance is when you lease the car, which is why it’s also known as a car leasing agreement. You will never be its outright owner – you’re essentially hiring it until the end of your finance agreement. In this way, PCH differs from either HP or PCP. Though it’s technically not car finance, as you’re not borrowing money, you’ll still see this term frequently used when discussing car financing options.

With PCH, you’ll typically pay a non-returnable deposit as well as your monthly repayments. At the agreement’s end, you’ll hand the car back. If you’ve gone over the mileage cap or have made unreasonable vehicular wear and tear, you’ll pay a penalty fee.

Find the right car finance for you with My Car Credit

Shopping around for car finance can seem stressful, but it needn’t be. My Car Credit aims to make the process of securing your dream deal stress-free and streamlined. Contact our expert team today on enquiries@mycarcredit.co.uk to start your car finance journey.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Return to Your Credit Profile
Return to search

Related articles

Tips for Securing Affordable Used Car Finance Monthly Payments

Read More

What Criteria Poor Credit Car Finance Lenders Look for in an Application

Read More

How Long Does It Take to Get Your Credit Score Up?

Read More
My Credit Rating

Excellent

  • 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

Good

  • 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

Fair

  • 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

Poor

  • 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

Bad

  • 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
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 10.9%, annual interest rate (fixed) 10.87%, 47 monthly payments of £191.50 followed by 1 payment of £201.50 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,702, total amount payable £9,202.

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.
Reviews icon
Trustpilot logo with five green stars indicating a 5-star customer rating.

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!

Email
or call 01246 458 810

Car Loan Early Repayment – Is It Worth It?

Woman repaying her car loan early online

There are many reasons why people consider paying off their car finance early. But whether you are eligible to do so depends on your personal circumstances, as well as the details of your car finance agreement.

You should expect to pay a settlement fee if you opt for early repayment of your car loan. As such, whether or not early repayment is worth it will vary from person to person, but you do need to think hard about whether you can afford to do so.

What is an ERC?

An ERC (early repayment charge, also known as a settlement figure or resettlement fee) is a penalty charge that you’ll likely have to make if you opt for early repayment of your car loan. This charge typically amounts to two months’ worth of interest, depending on your lender. Whether or not your car finance lender will charge you an ERC, depends on their policies and the type of car finance agreement you have.

Before you decide on an early repayment, it’s essential to know whether you may be liable to pay an ERC, so check with your finance provider first. Once you’ve asked them for this figure, you usually have around 28 days to decide if you want to proceed with the early repayment of your car loan.

How does car loan early repayment impact your credit score?

You may think that making an early repayment of your car loan would improve your credit score, but this isn’t necessarily the case.

If you pay off your car loan early, the account will show as closed within your credit report. It’s only open accounts that have an impact on your credit score, and other lenders sometimes like to see these accounts, so they can gauge how timely you are with repaying your debt. However, once your car finance account is closed, any benefit on your overall finance management won’t be evident on your credit report.

If you need your credit report to work in your favour – for example, if you’re applying for a mortgage or re-mortgaging – then you may be better off keeping your car finance open on your credit report.

Is it worth early repayment of a car loan?

Whether or not the early repayment of your car finance is worth it depends entirely on your situation and the terms of your agreement. You need to ask yourself whether you can truly afford the early repayment or settlement fees, and whether it might be beneficial to stay in the finance deal for the sake of your credit score.

Other factors to consider include whether you’re in negative equity. Essentially, if the settlement figure that you’ll have to make for early termination is higher than the value of the car, it’s probably worth waiting out your car finance term in full until you’re in positive equity.

Similarly, if you’re already close to the end of your finance term, it’s likely cheaper to stick to your current finance deal and finish all of your repayments, rather than face the settlement (ERC) fee.

Returning the vehicle

Another factor to consider if you’re on either HP or PCP finance is whether you want to return the car at the end of the finance term. Under the Consumer Credit Act of 1974, you can opt for ‘voluntary termination’ of the agreement, provided you’ve already paid half the cost of the car or will make up the difference between what you’ve paid and that number. However, if you do so, you won’t be able to return the car to the finance provider – you will be its legal owner.

This may be beneficial if the car’s value is higher than that of your remaining payments, as, once you’ve paid any settlement fee, you can then sell the car on and make a profit. But you may still be charged by your lender if you opt for voluntary termination. This amount is capped by law, but it’s still worth considering. Companies may also react badly to frequent voluntary terminations on your credit file, too.

Discuss your car finance needs today

If you want to get a car finance quote, discuss early repayment of your car loan, or have any further questions about the process, you can email My Car Credit on enquiries@mycarcredit.co.uk today.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Return to Your Credit Profile
Return to search

Related articles

Tips for Securing Affordable Used Car Finance Monthly Payments

Read More

What Criteria Poor Credit Car Finance Lenders Look for in an Application

Read More

How Long Does It Take to Get Your Credit Score Up?

Read More
My Credit Rating

Excellent

  • 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

Good

  • 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

Fair

  • 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

Poor

  • 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

Bad

  • 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
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 10.9%, annual interest rate (fixed) 10.87%, 47 monthly payments of £191.50 followed by 1 payment of £201.50 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,702, total amount payable £9,202.

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.
Reviews icon
Trustpilot logo with five green stars indicating a 5-star customer rating.

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!

Email
or call 01246 458 810

Is Car Finance a Personal Loan?

Woman sat outside on laptop

When you secure a car on finance, you’re borrowing money in order to pay for your new vehicle. You’ll then repay this loan via a series of pre-agreed monthly instalments.

There are different kinds of car finance that you can secure, and which one is right for you will depend entirely on your circumstances.

The language around loans and finance agreements can be confusing. This article is here to help you differentiate between them and decide what option is best for you.

What are the different types of car finance available?

If you are not a cash buyer, you’ll likely need to get a car finance quote and establish which finance option is best for you.

There are three main types of car finance:

Hire Purchase (HP)

With HP car finance, you’ll have the option of paying an initial deposit followed by a series of pre-determined monthly repayments. Because you will own the car at the end of an HP finance deal, your repayments are likely to be slightly higher than with PCP finance.

Personal Contract Purchase (PCP)

Unlike HP finance, with PCP finance, you don’t own the car at the end of the finance term. Think of it more like a long-term rental. You’ll pay an initial deposit and then a series of monthly repayments. At the end of the deal, you can return the car to the dealer or trade it in for another car. Or you can pay a lump sum in order to own it outright.

Personal Contract Hire (PCH)

The monthly repayments for PCH are lower than either HP or PCP, because you don’t own the car at the end of the finance term and are never its legal owner. You will pay an initial deposit and then return the vehicle to the dealer at the end of the term.

What is a personal loan?

As well as these three main types of car finance, you can secure a personal loan. A personal loan is a loan that allows you to borrow a specific amount of money. They’re available from banks and other lenders, and are unsecured, meaning that you don’t have to put up any other assets (such as your car or your house), in order to secure them. You’ll typically repay a personal loan over a longer period than any of the other finance options, but shorter options are available.

A personal loan can be used to finance a number of things. You can use a personal loan to finance the purchase of a car, but they’re not exclusively designed for this purpose.

If you do choose to use a personal loan to finance a vehicle, you’ll have the advantage of being seen as a ‘cash buyer’ by the dealership. As a result, you shouldn’t face any balloon payment or deposit. It also means that you own the car outright and will be able to sell it as and when you want.

What is a car loan?

A car loan is a type of personal loan and, as its name suggests, it is specifically designed for the purchase of a car (or another vehicle).

As with a personal loan, you will own the car outright with a car loan, and you shouldn’t face a deposit. You just have to budget for the monthly repayments on your car loan.

Is car finance, a personal loan, or a car loan right for you?

Whether a car finance deal, a personal loan, or a car loan is the right option for you will depend upon your circumstances. There are advantages and disadvantages to all three.

There’s also no hard-and-fast rule on which type of finance or loan deal is easier to secure – it will depend on your situation and the lender’s criteria.

With a personal loan and car loan, you own the car, and aren’t subject to any mileage usage. You can also resell the car whenever you want. You just have to ensure that you repay the loan in full and remember not to miss any repayments, which would impact your credit score.

Car finance tends to be more flexible, and you can choose to terminate the agreement early or purchase the car at the end of your term (depending on what option you settle for). That said, you may face mileage or other restrictions on usage.

Get a great car finance deal

If you’ve decided that car finance is the best option for you, My Car Credit is ready and waiting to find you a great deal. We compare finance across our large network of lenders to find deals that are tailored to each buyer’s budget, credit score and other requirements.

You can apply online and get an instant decision on car finance without impacting your credit score. If you have any questions about car finance and personal loans, our team are on hand to talk you through your options, contact us today on enquiries@mycarcredit.co.uk.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Return to Car Finance Options
Return to search

Related articles

Car Finance vs Personal Loan, what’s best for me?

Read More

Leasing a Vehicle vs Financing: What’s the Better Option?

Read More

8 Advantages and Disadvantages of a Balloon Payment

Read More
My Credit Rating

Excellent

  • 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

Good

  • 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

Fair

  • 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

Poor

  • 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

Bad

  • 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
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 10.9%, annual interest rate (fixed) 10.87%, 47 monthly payments of £191.50 followed by 1 payment of £201.50 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,702, total amount payable £9,202.

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.
Reviews icon
Trustpilot logo with five green stars indicating a 5-star customer rating.
Trustpilot

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!

Email
or call 01246 458 810

Does Getting a Car Loan Hurt Your Credit?

Car driving in the evening
Buying a car is likely one of the largest purchases you’ll ever have to make. This is why so many people are turning to car finance in order to make the process more manageable and affordable. However, occasionally we come across doubts about whether getting a car loan might hurt your credit.

This article will detail the different ways that getting car finance on your new vehicle might impact your credit – both positively and negatively.

What is a credit score?

Whether you know it or not, you will have a credit score. A credit score is used by lenders to understand your financial history. Furthermore, it allows them to make a judgement on whether you’re a good candidate for future loans. As such, lenders will perform credit checks on you to gauge this. These are known as either hard or soft, depending on whether they impact your score.

Credit reference agencies

Almost all forms of personal finance will impact your credit score. This is typically provided by different companies known as credit referencing agencies. Your number will usually be between 300 and 850. Generally, the higher it is, the better your credit rating – but there are variations between the companies who provide your score rating. In turn, this will impact where you sit on the spectrum of credit. A score of 500 with TransUnion would be below average for them, for example, but good for the provider Equifax.

Payment history and your credit score

Your payment history has a huge impact on your credit score, as does your history of applications. This is why if you make payments on time, this will positively affect your score. Conversely, there are things that might indicate to lenders that you’re a riskier candidate for a loan. For example, if your credit report shows missed payments or defaults, if you’re paying off multiple loans, or if you are near your credit limit. Your credit score might not be the singular factor in whether you’re approved for a loan. However, it will have an impact on your chances.

How does a car loan impact your credit score?

As with most things, getting car finance has advantages and disadvantages for your credit score. It will entirely depend on how you manage your repayments. It’s important to realise that when you first get your car finance loan, it will likely make a slight dent in your credit score. This is because it’s a hard enquiry into your credit history. However, if you are regular and on time with your repayments, this will soon bounce back.

Advantages of car finance on your credit score:

  1. If you make your repayments on time every time, this might have a positive impact on your overall credit score. In essence, it shows lenders that you’re a safe bet for future loans. Be aware, however, that this can take time to show up on your credit score.
  2. It diversifies your credit mix. Your credit mix refers to the types of credit that you have on your roster, which is usually divided between revolving credit (like credit cards) or instalment credit (like car loans). Lenders like a mix of both, so adding car finance onto your profile can make you more appealing for future loan applications. This in turn boosts your credit score.

Disadvantages of car finance on your credit score:

  1. If you are late on your repayments or miss one or more payments, your car loan is considered delinquent. You’ll typically be given a grace period to make the payment back. However, if your lender is required to take further action against you then your credit score will be negatively impacted. For example, if a full billing cycle goes by without you making payment. Consequentially, you might find it harder in the future to find good interest rates or a loan.
  2. If you default on the loan, your credit score will also be impacted. Should you continue to not make payments, the car finance lender may involve debt collectors, who could repossess your vehicle. Each of these elements – late payments, default, transference of the account to debt collectors, or repossession – leave a separate mark on your credit report. Furthermore, they’ll stay there for up to seven years, and they have a significant negative effect on your credit score.

Car finance and credit scores: what to know

Before you begin your hunt for car finance, it’s also important to understand the difference between different kinds of credit checks. This is because finance companies may conduct either a hard search or a soft search on your credit score.

Hard searches:

Some finance companies will conduct a hard search or enquiry on your credit report. This is a process that begins when you first apply for credit, and it requires your consent. However, it won’t happen if you’re only looking for pre-qualification to decide whether to apply.

A hard enquiry will take points off your credit score. This is temporary – usually staying on your report for two years – but will be visible on your credit report. It’s therefore best to limit the number of hard searches taking place on your score. You can do this by checking in advance of application whether you’re likely to be approved.

Soft searches:

Soft searches, by contrast, won’t impact your credit score. As such, they can take place without your knowledge. This kind of check is designed to give a ‘footprint-free’ check on your credit score, without lenders seeing any evidence of it. It aims to give you an idea of whether to enter into the terms of a car loan, without negatively affecting your score in the first instance.

Speak to My Car Credit today to find out more

If you want to find out more about whether or not getting a car loan will hurt your credit, speak to My Car Credit today. Our friendly team can help you get a car finance quote with a soft search that won’t impact your score. From there, you’ll be able to discuss your viability for a loan with one of our advisors. Get in touch today.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Return to Your Credit Profile
Return to search

Related articles

Tips for Securing Affordable Used Car Finance Monthly Payments

Read More

What Criteria Poor Credit Car Finance Lenders Look for in an Application

Read More

How Long Does It Take to Get Your Credit Score Up?

Read More
My Credit Rating

Excellent

  • 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

Good

  • 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

Fair

  • 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

Poor

  • 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

Bad

  • 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
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 10.9%, annual interest rate (fixed) 10.87%, 47 monthly payments of £191.50 followed by 1 payment of £201.50 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,702, total amount payable £9,202.

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.
Reviews icon
Trustpilot logo with five green stars indicating a 5-star customer rating.

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!

Email
or call 01246 458 810

Can I Get a Car Loan with a Poor Credit Score?

Car driving bought with a low credit score loan

It’s common for lenders to carry out a credit check on anyone who applies for a car loan. This is usually a ‘soft search’ initially. Credit checks can lead to those with poor credit scores shying away from applying due to the fear of rejection. However, you’ll be surprised how easy it is to successfully obtain a loan by making a few minimal changes.

In this short guide, we’ll explain everything you need to know when applying for a car loan with poor credit. In addition, we’ll cover how to get the best deal by ensuring your credit score is up to scratch.

What is a car loan?

Finding the right car within your price range can be a challenge. But, with a car loan, you can spread the payments out over a course of several months or years. This is a great way of significantly increasing the options available to you.

Two popular forms of car loan are a personal loan and Hire Purchase (HP). A personal loan will see someone borrow money from a lender, bank or building society. This allows them to have instant ownership of a car. In contrast, HP will have the individual pay an initial deposit (not always required) with fixed monthly payments for the next three to five years. They effectively hire the vehicle over the period, with the option to purchase at the end.

At the end of the term, they will be offered three choices; to either return the car to the supplier, keep it, or trade it in for a replacement. However, you must be careful not to miss the repayments before the end of the term. In these cases, the finance company may decide to repossess the vehicle to settle the debt.

How can you improve your credit score?

A lender will perform a credit check to ensure that the person applying can afford the monthly payments. People who obtain an excellent credit score will have demonstrated a firm grasp of their finances. In theory, this makes for a reliable choice for lenders.

Those described as having a ‘thin’ credit history will have a history of missing payments. Alternatively, there may be little concrete evidence of financial security, such as never owning a credit card or bank account. A higher credit score will open more doors. This could include a much more comprehensive range of car loan options. These are often accompanied by much more favourable interest rates.

Here are some simple but effective ways of raising your credit score.

1. Identify the problems in your credit report

Before you apply for a car loan, it will be wise to get a free copy of your credit report. This will give you an idea of any pitfalls that may scupper your loan request. There may be some glaring mistakes you are making in the way you handle your money, damaging the profile. It is also worth ensuring it is up to date and doesn’t contain any errors or inaccuracies which could unfairly affect your score.

2. Apply for a credit card and use it sensibly

Credit cards have a strange reputation of being a poor way to save money. But the truth is that as long as you’re making repayments on time, they will put you in good stead to improve your credit score. Proof that you can budget and regularly meet repayment deadlines will help you secure a more competitive car loan deal.

3. Stay away from bad credit

If you’ve ever been financially linked with someone you know has bad credit, such as a joint account or shared mortgage, it may lower your credit score. If this is the case, it will be a good idea to issue a notice of disassociation. This informs lenders that you are no longer financially linked and should be judged on your own merit.

4. Settle any loans

Now is the time to settle those loans and reduce your debt as much as possible. This is easier said than done, but to get behind the wheel of the car you desire you may need to work at it.

What are my other options for obtaining a loan?

Start by crunching the numbers on a car loan calculator. You may consider making slight changes to the car loan variables to see how it can help. No matter how low your credit score, some changes can ultimately work in your favour to help you get a car with poor credit history.

1. Pay a larger deposit

Simply put, a larger up-front deposit will mean your monthly payments will be reduced. This in turn minimises the risk for the lender in ensuring they are met. It can be frustrating as you’ll be forking out a potentially huge chunk of money. That said, it is often a sure-fire way to improve your chance of getting the deal.

2. Pay a higher interest rate

Someone with a low credit score will often need to accept a higher interest rate than the advertised representative rate. Again, it may seem frustrating on the face of it. However, don’t despair as it tends to mean only a slightly higher monthly payment.

3. Choose a lower annual mileage limit

Opting for a lower annual mileage limit can result in much lower costs month to month. This is because the car will be worth much more to the dealer at the end of the loan. This is usually related to fewer miles on the clock and less wear and tear.

However, you will want to keep the figure realistic. Going over your allowance will end up costing you dearly. You will find that there are harsh penalties that charge you for every extra mile taken.

4. Choose a used car

Opting for a loan on a used car will ultimately see you borrowing less money from a provider. This improves the possibility of obtaining a loan, even with a poor credit score. There is much less risk for the dealer as the car will already have depreciated in value. However, this doesn’t deflect from the fact that used cars are mostly reliable and of good quality.

If you worry about being able to afford to buy a car, this may be the best and most sensible option.

Need help getting a car loan with a poor credit score?

Take the headache out of getting a car loan with a straightforward and simple chat with our friendly specialists. Find out more about how we can find the right deal for you no matter how your credit score may look.

You’re not in this on your own, and we’ll support you every step on the way to get you on the road with the car of your dreams. Give us a call on 01246 458 810 or email enquiries@mycarcredit.co.uk to find out more

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Return to Car Finance Options
Return to search

Related articles

Can You Get Cars on HP with No Deposit?

Read More

What to Do If You Can’t Pay Car Finance Because of COVID-19

Read More

What’s the Cheapest Way to Finance a Car?

Read More
My Credit Rating

Excellent

  • 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

Good

  • 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

Fair

  • 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

Poor

  • 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

Bad

  • 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
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 10.9%, annual interest rate (fixed) 10.87%, 47 monthly payments of £191.50 followed by 1 payment of £201.50 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,702, total amount payable £9,202.

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.
Reviews icon
Trustpilot logo with five green stars indicating a 5-star customer rating.
Trustpilot

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!

Email
or call 01246 458 810