How Does Auto Finance Work?

Lady applying for auto finance in a cafe

With average car prices sitting at around £38,000 for family-friendly SUVs and almost £22,000 for compact hatchbacks, paying cash simply isn’t an option for many Brits. This is where auto finance steps up. Designed to get you behind the wheel of your dream car faster, auto finance is a great way to boost your spending power.

So, how does auto finance work? Read on for a complete guide that covers everything you need to know about auto finance. We cut through jargon, unpack the acronyms and break down exactly how auto finance works.

What does ‘auto finance’ mean?

The term ‘auto finance’ is relatively self-explanatory. Like other financial contracts, such as credit cards and house mortgages, auto finance makes big purchases more affordable for everyday Brits.

How does auto finance work? The umbrella term describes a series of credit agreements between the buyer and lender. We take a closer look at the different types of auto finance later on in the article.

Instalments are generally made monthly, though this can vary depending on the type of auto finance contract. Many auto finance contracts are also restricted by caps on mileage and wear and tear. This can work in your favour if your priority is to drive the latest models packed with next-gen technology and driver-assist features.

Does auto finance include interest?

How does auto finance work in terms of interest? Most auto finance contracts incur interest. However, rates are generally far more affordable than taking out a personal loan with a bank or private lender. Interest rates vary depending on the type of auto finance loan you take out.

Auto finance eligibility

Eligibility for car finance depends on a variety of factors. Most importantly, you’ll need to be at least 18-years old and a legal resident of the UK. Tick both these boxes and your chances for auto finance approval drastically increase. Lenders will then start looking at things like your credit score.

What are the different kinds of auto finance?

There are several different types of auto finance to choose from. Finding the right fit depends on your personal preferences and financial situation. We take a closer look at the different options below…

Car loans

Car loans are essentially personal loans designed to purchase vehicles. Cash is borrowed directly from banks or private lenders and used to fund the purchase of a vehicle. You become the outright owner of the car and pay back your loan in instalments, plus interest. 

Personal Contract Purchase (PCP)

Low monthly repayments and plenty of flexibility make PCP contracts one of the most popular car finance options. How does auto finance work for PCP contracts? You kickstart your PCP loan with a cash deposit. The larger your initial deposit, the lower your monthly repayments. PCP repayments are low as you don’t pay for the car itself, rather you cover the vehicle’s depreciation in value. Most PCP loans include mileage caps designed to limit wear and tear.

At the end of the contract, you can choose to make a final ‘balloon payment’ to become the owner of the car. This covers the remaining value of the vehicle. Alternatively, you can return the car and start a new contract. This makes Personal Contract Purchase loans a great option for motorists who love to drive the latest models.

Hire Purchase (HP)

HP loans are similar to PCP contracts, with a few small adjustments. How does auto finance work for HP loans? Deposits are usually around 10%, followed by fixed monthly payments for the duration of the contract. Interest rates are competitive and repayment terms are generally flexible. Unlike PCP loans, HP contracts don’t usually restrict you with mileage caps. This makes them a great option for motorists who plan to use their car for business and leisure.

Like PCP loans, you don’t legally own the vehicle unless you make a final balloon payment at the end of the contract. Otherwise, you’re free to return the car at the end of the contract, without any further payments.

Personal Contract Hire (PCH)

PCH leasing agreements see you lease a vehicle for the duration of your contract. There’s no option to purchase the car and become the outright owner at the end of the contract. Unlike PCP and HP loans, you’re not technically borrowing cash to fund the purchase of a car.

Instead, you pay a non-returnable deposit to initiate the leasing agreement and continue to make monthly ‘hire’ repayments. You’ll need to return the car at the end of the contract. Most PCH agreements are restricted by mileage and wear and tear caps.

Do I need a good credit score for auto finance?

Most lenders will run a credit score check before approving car finance applications. This helps establish your borrowing history and determine the level of risk involved. At My Car Credit, we always start with a soft search. Unlike hard searches, this entry-level financial history check doesn’t leave a mark on your credit score. If you want to know more about your credit score to finance a car, a soft search is the best place to start.

A good credit score will always help you unlock the best car finance deals. So, how does auto finance work without a good credit score? With the right help and guidance, many applicants with poor credit are eligible for car finance. The key is to find a car finance broker with a large panel of lenders. This allows brokers to look beyond traditional lenders and match your application with other options. 

Find the best auto finance deals with My Car Credit

Tracking down the best auto finance deals doesn’t have to be stressful. At My Car Credit, our goal is to connect you with the top lenders in the UK, so you can enjoy stress-free auto finance and the best possible interest rates.

Want to know more about auto finance? Get in touch with our expert team today to learn more about how auto finance works – and your different options.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

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

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

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

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

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or call 01246 458 810

How Do Car Finance Calculators Work?

Couple using a calculator to work out car finance
So, you’ve found a fantastic dealership with the perfect set of wheels, and are looking to drive your new car off the showroom floor as quickly as possible. It’s likely you’ll be wondering how best to fund your new car and whether you’re eligible for car finance. What’s more, you may be questioning how car finance calculators work and how much car finance you’d even qualify for.

My Car Credit is here to answer those burning questions. We’ll walk you through using our straightforward online car payment calculator so that you can get behind the wheel with minimal worries and in control of a repayment scheme that works for you. Read on to find out more.

How car finance calculators work

We understand how stressful it can be determining whether you’re eligible for car finance and finding the best car finance option. Between the paperwork and administration, you can end up getting lost in the fine print and end up with a car finance repayment deal that is both confusing and overly expensive.

That’s why we’ve worked so hard to simplify the process, making it as streamlined and hassle-free as possible. Our online calculator is easy to fill in and takes mere minutes to get you answers, crunching the numbers so that you know exactly what you can expect to pay, and when.

What factors our car finance calculators consider

Our calculator helps you establish your monthly repayment terms against the amount you’re looking to borrow. You simply fill in the car loan amount that you’re looking for, and your preferred repayment term, followed by your credit rating. We’ll also ask you for some personal information, such as your email address, current UK address, and employment details.

The calculator will then instantly break down this information and detail the typical rate of interest and monthly payments that you can expect to see depending on your personal circumstances. We’ll also outline the total amount payable, and explain our reasons for this. The calculation is subject to status, but it’s a good indicator of what your options are for car finance.

The benefits of car finance calculators

Using a car finance calculator can help you to establish what type of car finance is right for you. By being able to see any interest rates or monthly payments upfront, you can better see whether the loan offered suits your particular needs and requirements. Don’t forget that a late or missed repayment will affect your credit score, so using a car finance calculator to work out what type of monthly repayment you can afford is a huge advantage. That way, you’ll be better able to budget for your new set of wheels without being unrealistic.

Car finance calculators can be used in one of two ways, depending on where you are in the search for your vehicle. You could use the calculator to work out how much you’ll be paying for a specific car that you have your eyes on. Equally, you can use it pre-emptively before you’ve even found a car to establish whether you’re eligible for car finance. That way, you can establish how much you can afford to borrow before setting out on your search, which might avoid any disappointment further down the line.

Best of all, it’s free to use and there’s no obligation to go ahead. Plus, with us, the rate you see is the rate you get – we won’t surprise you with any extra costs or hidden terms.

Do car finance calculators affect your credit score?

One of the details that we’ll ask you to include when using our car finance calculator is your credit score – whether it’s excellent or good, fair, poor, or bad. Our calculator provides you with a credit rating guide which you can use to judge your rating.

But don’t worry, we’ll only do an initial soft search. This means we’ll conduct a search on your credit file that other lenders can’t see, meaning there’ll be no unexpected impact for you. We make an assessment of your creditworthiness based on the details you provide us and give you an indication of APR (annual percentage rate).

We’ll try to give you an exact APR that’s dependent on your personal circumstances – this is known as your personal APR or real rate. It’s worth knowing, too, that 49% of our customers are likely to get a better rate than the Representative APR, which allows us to clearly advertise our services, so that you can gauge how the rates we offer you compare with other car finance offers.

Our initial soft search is a fantastic way for you to establish whether you’re eligible for car finance without affecting your credit score. But be aware that if you proceed with our car finance, then we will conduct a hard search.

How accurate are car finance calculators?          

Our car finance calculator is specifically designed to be as straightforward and easy to use as possible. It helps you to establish the amount you can expect to pay for your new vehicle. Provided that you give us accurate, up-to-date information, there’s no reason that the car finance calculator would give you incorrect quotes.

That said, it’s worth bearing in mind that the numbers our car finance calculator provides are estimates and not offers. The quotes we supply are contingent on you giving us the correct information, and there are several factors that affect the ultimate cost of car finance.

Use our car finance calculator today

Whatever your car finance needs, My Car Credit is here for you. Our online calculator is easy to fill in and will give you an indication of eligibility and a quote within minutes.

If you choose to proceed with your quote, we have a team of car finance experts just waiting to help you through every step of the process. Backed by a network of over 25 lenders, we’re best placed to get every driver a great deal on finance for their next car. Start your car finance journey today.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

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

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

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

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

Am I eligible for car finance?

Young people checking on ipad to see if they are eligible for car finance

Car finance is a great way of affording the car you want, allowing you to spread the cost of the purchase over a period of time. However, it can be difficult to know if this is the best option for you. We’re going to take you through everything that can impact your eligibility for finance so that you know where you stand.

Age

We know that ‘age is just a number’ but there are some restrictions on when you are eligible for car finance. The minimum age is 18, and the maximum age is 75. You must fit the age criteria from the beginning date of the agreement – i.e. you can be 17 and organise car finance with us as long as you’re 18 when your agreement starts.

Residency

You need to be a UK resident of more than three years. We do not usually accept temporary residents in the UK, but if you’re living in the UK and have an EU driving license, we may still be able to help. Also: To clear up a question we’re often asked – we do accept residents of Northern Ireland.

Credit score

Your credit score makes a big difference to your chances of being accepted and the terms of your agreement. The better your credit score, the more likely you are to have your car finance application approved and receive lower annual percentage rates (APR). An APR is the amount of interest you pay back for borrowing money from your lender.

If you have a poor credit score, you can still be accepted for finance but you may find that providing a deposit will help you to secure an agreement. There are also a number of ways to improve your credit score.

The vehicle

The vehicle you’re looking to finance must be less than eight years old at the start of your agreement, and less than twelve years old at the end. However, a poor credit history could mean that the age of the car is limited to a maximum of ten years old at the end of the agreement.

There are no limits to monthly mileage unless you’re on a leasing agreement, such as a Hire Purchase agreement. In this case, the usual mileage limit is 100,000, although lenders do have different criteria.

Click to learn more about the different car finance options.

Employment

You must be in stable employment and able to provide your previous three months’ bank statements and payslips. Stable employment history will be viewed favourably and may also help to reduce the interest rate that you pay on your loan.

If you’ve been in your job for less than three months, we may be able to help if you have been consistently employed in the past.

If you are self-employed, it can be more difficult to obtain car finance, but it is possible. You can read more about getting car finance when you’re self-employed.

If you work part-time, you will still have options. You will need to earn the lender’s minimum income criteria and be able to provide three months’ payslips.

Benefits

If you claim benefits you will need to prove that at least half of your income is from employment.

Accepted benefits as forms of income include Carer’s Allowance, Local Council Tax Support, Disability Living Allowance, Tax Credits, Incapacity Benefit (long term incapacity), Pension Credit, and State Retirement Pension.

If you claim disability benefit, lenders try to be more flexible due to the nature of the benefit and will accept government-funded mobility allowance.

Retirement

If you are retired, we’re happy to help – despite being out of employment, usually retired applicants are in a good financial position having had the time to build up a good credit history.

All you will need to do is have proof of income. This would need to come from a pension, investment or property rental income.

Due to the usual age group of retired applicants, lenders may want to minimise the term of the loan to help share any associated risks.

If you’ve found the perfect car and you’re itching to get behind the wheel but you’re not sure how you’re going to pay for it, finance is a great option. We hope this has given you a good overview of the factors which affect your eligibility for car finance, but if you have any questions, give the My Car Credit team a shout – we’re always here to help!

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

Return to Eligibility
Return to search

Related articles

Can I Get Car Finance with Poor Credit History?

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I am self employed, can I still get car finance?

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

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

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

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