Car finance
What is car finance?
Car finance is a catch-all term for the different ways you can buy a car without handing over the full price at once. Instead, you spread the cost over months or years, making fixed monthly payments rather than one large sum upfront.
How car finance works
Whichever type of finance you choose, a lender covers the cost of the car while you pay them back in monthly instalments, usually after putting down an initial deposit.
Some agreements come with conditions attached. For example, keeping to the manufacturer's service schedule or staying within an annual mileage limit.
At the end of your agreement, what happens next depends on the type of finance you chose: you might own the car outright, make a final payment to buy it, or hand it back.
We've partnered with CarMoney to give you a finance calculator that searches across a panel of lenders, so you can compare options and find the one that fits.
We’ve partnered with CarMoney to create a finance calculator that allows you to search a panel of finance providers and find the most suitable car loan for your needs.
HP and PCP representative example. If your borrow amount is £6,000 with a deposit of £1,000, a selected term of 48 months, at a representative APR of 17.8%, you would pay £171.56 per month. Total charge for credit will be £2,234.88 and total amount payable is £9,234.88. CarMoney Limited can introduce you to a limited number of finance providers based on your credit rating and CarMoney will receive a commission for such introductions that can either be a % of the amount borrowed or a flat fee. This does not influence the interest rate you’re offered in any way. CarMoney is a broker not a lender. For full T&Cs please click here.
This calculator is for illustration purposes only. Your actual repayments could be lower or higher depending on your personal circumstances. The make, model and age of the car you’d like to purchase will also impact the final figure quoted.
Types of car finance
Hire purchase (HP)
You pay a deposit, then fixed monthly payments over an agreed term. When you've made your final payment, the car is yours, no lump sum, no decision to make. Good if you want straightforward ownership at the end, without any surprises.
Personal contract purchase (PCP)
You make lower monthly payments over an agreed term, but you're not paying off the full value of the car, just the portion it's expected to lose. At the end, you have three options, hand the car back, use any equity towards your next one, or pay an optional final payment to keep it.
Good if you want flexibility at the end of the agreement, or lower monthly payments matter more than ownership.
Credit score
Car finance is a catch-all term for the different ways you can buy a car without paying for it all at once, spreading the cost over a few years so it fits into your monthly budget rather than hitting all at once.
Conditional Sale (CS) car finance
Similar to HP, you pay in monthly instalments over a fixed period, and ownership transfers to you automatically once all payments are made. No final payment, no extra fees. Good if you want a clear, linear path to owning the car.
Popular questions
Will applying for finance affect my credit score?
Yes, it may. When you apply, the lender will run a hard credit check, which leaves a mark on your credit file. A single application is unlikely to cause problems, but several hard checks in a short period can affect your score for up to six months which may make it harder to get approved for credit elsewhere in the meantime.
I'm worried about my credit score. Will I be accepted?
A lower credit score does reduce your chances of being approved, and it can affect the interest rate you're offered.
There's no way around that, but there are things that genuinely help over time:
- Keep up with regular payments — phone bills, subscriptions, anything on a direct debit.
- Stay well within your credit card limit.
- Don't make multiple credit applications in quick succession.
- Register on the electoral roll at your current address — it's a simple step that lenders use to verify your identity.
The stronger your credit profile, the more likely you are to be approved — and the less you're likely to pay in interest over the course of your agreement.
If you’d like to learn more about improving your credit rating, visit CarMoney for more useful tips and information.