How Much is a Deposit for a Car?

Woman in a car drinking coffee

When you’re ready to buy a new set of wheels, whether it’s brand-new Kia Sportage or a used Tesla Model 3, one of the first questions you’ll likely have is ‘how much is a deposit for a car’.

In the UK, the amount you’ll need for a car deposit can vary enormously and depends on several factors, including the type of finance agreement you choose, the price of the car, and your credit history. To make things a little clearer, let’s break down these factors to help you budget for your new ride.

Understanding car deposits

A car deposit is an initial payment made at the time of the vehicle purchase. It’s a portion of the total cost that you pay upfront and reduces the amount you’ll need to borrow through finance plans like a personal contract purchase (PCP) or hire purchase (HP). The deposit not only reduces your monthly payments but can help secure a better interest rate and terms on your agreement.

Factors influencing the size of your deposit

Now you know more about what a car deposit is, let’s take a closer look at the factors that can affect how much you’ll need to pay.

Type of finance agreement

Different finance plans require different deposit amounts.

PCP: How much is a deposit for a car with PCP? Personal contract purchase plans usually ask for anywhere between 10% and 30% of the car’s value as a deposit. The flexibility of PCP plans often means you can adjust the deposit to find a monthly payment that suits your budget.

HP: Hire purchase agreements usually require a deposit of around 10% of the vehicle’s price, though this can be higher depending on the agreement with the lender.

Personal loans: If you’re taking out a personal loan from a bank or other financial institution, the deposit might be flexible. Some lenders offer loans for the full value of the car, which could potentially reduce the deposit to zero.

Cost of the car

The answer to ‘how much is a deposit for a car’ also depends on the purchase price. Naturally, the more expensive the car, the higher the deposit. For example, a £30,000 car, at a 10% deposit rate, would mean a £3,000 upfront payment.

Your credit rating

Your credit score plays a key role in determining how much is a deposit for a car. A high credit rating establishes you as a responsible borrower and can convince lenders to reduce the deposit amount. On the flip side, a less-than-perfect credit score may prompt lenders to request a bigger deposit.

Average deposit amounts

While there’s no one-size-fits-all answer, most British motorists can expect to pay a deposit of anywhere from 10% to 30% of the total cost of the car. Here are a few scenarios:

Economy cars: For more affordable vehicles priced around £10,000, you might be looking at deposits from £1,000 to £3,000.

Mid-range cars: How much is a deposit for a car for vehicles in the mid-range market? For cars priced around £20,000, expect to pay a deposit of between £2,000 and £6,000.

High-end cars: For luxury cars or higher-spec models, which can cost upwards of £40,000, the deposit might be anywhere from £4,000 to £12,000 or more, depending on your finance deal.

Consider no deposit car finance

Most auto finance agreements start with a cash deposit however this isn’t a hard and fast rule. For some motorists, no deposit car finance can be a great way to skip the deposit and secure the keys to a new car, without parting with a large sum of cash. Whether you’re finding it hard to save for a deposit or simply want to preserve your capital for other expenses, no deposit car finance is an attractive option for many Brits. 

Get behind the wheel with My Car Credit

Whether you’re looking to go down the traditional auto finance route and kickstart your agreement with a deposit, or you’d prefer to fast-track the process with a no deposit plan, we’re here to help. At My Car Credit, we’re dedicated to securing you the right deal on car finance, no matter what your budget or financial situation.

Give our online car finance calculator a try and get on the road to your dream car today!

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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.

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!

Figure Out Your Monthly Car Payment with Ease

Man driving after figuring out his monthly car payments

If you’re searching the market for a brand-new or used vehicle, you’re probably wondering how to figure out your monthly car payments. After all, with inflation and the rising cost of living, most of us are on a strict budget.

Thankfully, it’s relatively straightforward to calculate the amount you owe once you know your loan amount, repayment term and credit rating. Keep reading to find out more.

What makes up your monthly car payment?

We suggest breaking down your monthly car payments into two sections – finance repayments (which you can figure out via a car finance calculator) and vehicle expenses. The former is the amount you’ll pay back towards the total cost of the car, including interest. The latter covers fuel, insurance, tax, service charges and planned or unplanned maintenance.

It’s important to distinguish between the two. While finance repayments are often fixed (they may fluctuate slightly depending on inflation), vehicle expenses vary considerably. This means it’s wise to set aside a few hundred pounds to buffer against emergencies.

How can I calculate finance repayments?

As finance repayments make up the largest chunk of what you’ll owe, it makes sense to start here. You don’t have to do the maths yourself. Instead, use our hassle-free car finance calculator.

How does it work? Simply input your desired loan amount, preferred repayment term and credit rating. Then, you’ll receive an immediate snapshot of your expected monthly costs, typical interest rate and total amount payable.

We know what you’re thinking – how accurate can this really be? Of course, to provide a thorough assessment, we’d need more information, such as your income and debt. However, calculators offer illustrative examples to help you make an informed decision about what you can afford.

As for the amount, it shouldn’t exceed 10% to 15% of your income. After taxes, the average monthly earnings in the UK are around £2,300. This means you should spend between £230 and £345 on car finance repayments.

How can I calculate other vehicle expenses?

Calculating other vehicle expenses is trickier because they fluctuate. One month, you might only need to budget for fuel. The next, you could have an engine malfunction. You never know what’s around the corner. However, you can mitigate risk by purchasing cars (especially used cars) from reputable sellers.

As a rule, you shouldn’t spend more than 20% of your income on total car costs. Going back to the example earlier – let’s say you take home £2,300 per month and spend £230 on finance repayments. You could effectively spend up to another £230 on vehicle expenses without causing too much financial strain.

If you took out a larger loan for a more expensive car, you’ll probably have less money for additional costs. This is something to consider carefully before entering a finance agreement. There’s no point buying a flashy car if you can’t keep it on the road!

How can I decrease my monthly car payments?

There are a few ways you can decrease your monthly car payments, including:

  • Purchase what you need, not what you want
  • Increase your down payment
  • Improve your credit score

Purchase what you need, not what you want

Quite simply, the more expensive the car, the bigger the loan and monthly repayments. While you might want an exciting four-wheel drive with plenty of leg room and high-tech features, you may not be able to live comfortably and honour your other financial commitments while footing the bill.

Increase your down payment

A down payment is a lump sum paid by the customer towards the value of the car. It’s a bit like a house deposit in the sense that it’s deducted from the total amount owed, meaning you have to pay less overall. 

How much should you contribute? It depends. Anywhere between 10% to 20% of the car’s value is ideal – 10% is reasonable for used vehicles.

Improve your credit score

Above all else, improve your credit score. If you have a good or excellent rating, you’ll receive more favourable terms because you’ve proven yourself capable of meeting repayments in the past. On the other hand, people with bad credit scores are considered riskier investments, so lenders tend to bump up the interest rates.

You can improve your credit score by paying direct debits on time, overpaying debt and ensuring you’re on the electoral roll.

Find out how much you could owe today

Want to figure out your monthly car payments? Use our car finance calculator to begin the exciting journey to your next car.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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.

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!

Can You Get Cars on HP with No Deposit?

Man with car in front of car bought on HP with no deposit

Purchasing a new car can often feel like a tightrope walk, especially when you’re trying to balance the excitement of choosing your dream make and model with budget constraints. If you’ve been eyeing that perfect set of wheels but the upfront cost seems daunting, no deposit hire purchase could be a clever solution.

Designed to bypass the large initial deposit typically required for hire purchase (HP) agreements, no deposit plans can be a great way to secure the keys to a new car, without parting with a large sum of cash.

Want to know more? Let’s unpack the possibilities and perks of cars on HP no deposit to see if it’s the right move for you.

Understanding hire purchase (HP)

Hire purchase is a bit like the reliable workhorse of car finance options – simple, straightforward and with no unnecessary frills. One of the main features of HP is that agreements end with you owning the car outright. The model splits the cost of your new or used car into manageable monthly payments over a period that you choose, usually one to five years.

The main difference from other plans, like personal contract purchase (PCP), is that you’re working towards ownership right from the start – every payment brings you closer to claiming those keys for good.

Why consider no deposit HP?

Traditionally, HP deals ask for a deposit, often around 10% of the car’s price. This is paid straight out of your pocket. It’s a fast track to car ownership, sure. But it’s also a fast drain on your savings. This is where no deposit options come into play, offering a lifeline to motorists who don’t have access to large sums of cash, or want to preserve their capital. Here’s a closer look at who no deposit hire purchase works for:

First-time buyers: Accelerate your journey to car ownership without the time delays associated with saving up a deposit.

Motorists with immediate needs: Get a car quickly, perhaps for a new job or unexpected family growth, without waiting to save enough funds.

Cash flow savers: Keep your savings intact for other life essentials or unexpected expenses.

Top benefits of no deposit hire purchase

Purchasing cars on HP no-deposit plans can be a great option for all kinds of motorists, from first-time buyers to motorway veterans. Here’s a closer look at some of the top benefits of HP with no deposit.

Fast access to a car: Jump straight into the driver’s seat without saving for the initial lump sum. This is car finance, in the fast lane. 

Maintain cash flow: Avoid the upfront financial hit and keep your budget breathing easy. No deposit hire purchase gives you more freedom to manage monthly expenses or even splurge on a road trip or two.

Better car options: With no deposit to factor into your budget, you may be able to afford a car with a few extra bells and whistles. For example, a model with the latest infotainment technology, or something with a fuel-efficient hybrid engine.

Predictable budgeting: Fixed monthly payments mean no surprises. You’ll know exactly what you need to pay each month for your car, making it easier to budget for everything from rent and groceries to holidays and entertainment.

Clear path to ownership: Once the final payment is made, the car is all yours. No balloon payments, no residual value calculations and no hidden costs. Just your car, your way.

Things to consider

While no deposit HP sounds like a dream, it’s not without its considerations. Here’s what to keep in mind when shopping around for cars on HP with no deposit.

Higher monthly payments: With no deposit HP agreements, you’re spreading the entire cost of the car across the payment period, with no deposit to reduce the monthly instalments.

Total cost of borrowing: Financing the full purchase price of the car usually means paying more interest over time. It’s worth doing the maths to see how it tallies up against a deposit-based deal.

Credit score impact: Good credit is often crucial for securing a no deposit deal. This is because lenders take on more risk when they don’t collect an upfront payment.

Securing a no deposit hire purchase agreement

Ready to proceed with a no deposit hire purchase agreement? Here’s how to get started in three easy steps:

1. Compare lenders

Not all lenders offer no deposit options, so shop around for those that do. You’ll also see variation between interest rates, terms, conditions and other variables, so it’s worth doing your research to find the right fit.

2. Credit check

Make sure your credit score is in good shape to improve your chances of approval for cars on HP no deposit.

3. Understand the full terms

Before signing on the dotted line make sure you understand all the details, from interest rates to payment schedules. This will help ensure there are no surprises down the road.

Find no deposit hire purchase deals with My Car Credit

With myriad benefits on offer, a no deposit hire purchase agreement could open up new possibilities for managing your finances while securing the car you’ve been dreaming of. No deposit plans are about more than just convenience. They’re about making smarter choices that align with your lifestyle and budget. Whether you’re upgrading from an older model or venturing into car ownership for the first time, HP with no deposit is worth a closer look.

Ready to take the next step? Check out our car finance calculator to get the wheels moving on your next car.  

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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.

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!

How to Estimate Your Monthly Car Payment

Peson calculating their monthly car payments

In today’s economy, people are having to become thriftier than ever. Financial literacy is one of the best weapons against the rising cost of living, and part of that involves tracking every outgoing. Basically, it’s simple maths – you shouldn’t spend more than you take home.

In addition to managing day-to-day expenses like food shopping, it’s helpful to anticipate more significant costs, such as mortgage and car repayments. Vehicles, as a whole, eat up a substantial chunk of the average Brit’s wage, with total monthly payments (including fuel, insurance and maintenance) averaging around £317 per month.

While home ownership and supermarket shelves aren’t our strong points, we do know a lot about cars. The following guide explains how to estimate your monthly car repayments (hint: by using our handy car finance calculator) and what variables can affect the total amount.

How much should I spend on a car?

Of course, your monthly repayments depend on the cost of the vehicle – the more expensive the car, the greater they’ll be. But how much should you spend in the first place?

While we can’t give you a definite answer, as a rule, you should allocate no more than 10% to 15% of your income on car repayments. If you earn £35,000, that’s £3,500 per year. On top of this, the total amount you spend on your vehicle shouldn’t exceed 20% of your income. This includes planned and unplanned maintenance, insurance and fuel.

Top tip: Before entering into a credit agreement, you must assess whether you can afford the repayments for the duration of the loan. Otherwise, it’ll impact your credit score.

How much can I borrow to buy a car?

Most people simply don’t have the resources to buy a car outright. Instead, they borrow money from reputable lenders. The most common types of car finance agreements are personal contract purchase (PCP), hire purchase (HP), leasing (personal contract hire) and a personal loan.

Whatever you choose, the amount you can borrow depends on your circumstances. Credit brokers and lenders will assess your income, outgoings and debt before making a final decision.

What variables affect monthly repayments?

If you want to estimate your monthly car repayments, consider the following variables. Each one will influence the final figure:

  • Car price
  • Down payment 
  • New vs used
  • Repayment term
  • Interest rate
  • Credit history

Top tip: Finance calculators are easy and free to use. They provide an estimate of what your monthly payments could be based on your credit profile.

Car price

As mentioned earlier, the more expensive the car, the higher the monthly repayments. Remember that running costs, unplanned costs and service charges aren’t included in this figure, so don’t blow your entire budget on the initial purchase.

Down payment 

Much like a house deposit, a down payment is a lump sum paid upfront by the customer. It’s deducted from the total cost of the car, reducing the overall amount that has to be financed. The size of a down payment determines monthly repayments, interest rates and repayment terms.

How much should a down payment be? You’ll usually receive better contract terms if you cover around 20% of the total cost of the car. However, any size deposit will help lower the cost of finance and you shouldn’t put yourself under financial pressure by paying more than you can afford.

New vs used

Used cars are your best bet if you want lower monthly repayments. Firstly, they’re often less expensive, so you don’t need to borrow as much. Secondly, and perhaps most importantly, they tend to depreciate in value slower than new cars, meaning you might not lose as much money in the long run.

Repayment term

A repayment term is the amount of time you have to pay back your car finance. The average car loan length for new vehicles is 72 months, compared to 65 months for used vehicles.

So, which is better – short or long repayment terms? It depends. The longer the term, the lower the monthly repayments. However, you’ll make more payments overall and accrue more interest. Ultimately, longer repayment terms might be more manageable for low-income households but aren’t necessarily cheaper over time.

Another thing to think about here is depreciation. If your car crashes in value, a longer loan term might mean, that eventually, the outstanding balance is actually worth more than the car itself.

Interest rate

As with any loan, interest rates will influence your monthly repayments. High interest rates mean you’ll pay more, so it’s important to find the best possible deal before committing to a finance plan. Shop around for a good APR (annual percentage rate) – this tallies total costs (including interest rates) to provide an accurate insight into how much your loan will be.

What should you be aiming for? Generally, 10.9% is considered good for someone with an excellent credit score, and anything up to 12% is reasonable. If you have a poor credit score or no credit history at all, you could be looking at 20% or higher.

Credit history

Your credit history is a biggie and one of the most significant factors in deciding how much you can borrow. While lenders might accept applicants with poor credit on a case-by-case basis, it’s much harder to secure finance with reasonable terms. For example, you’ll probably pay higher interest rates.

Top tip: If you have a poor credit score and want to reduce your monthly repayments, make a larger down payment or find a trustworthy guarantor to back your claim. Bear in mind that your guarantor becomes liable for your repayments, and therefore, this option is a big responsibility that should be carefully considered.

How much will my monthly repayments be?

It’s impossible to say for sure how much your monthly repayments will be unless we have all the information above. For more information, why not use our car finance calculator?

The calculator is especially handy for people who are short on time. Simply input your loan amount, repayment term and credit rating, and the calculator will provide an instant breakdown of expected costs. Everyone’s welcome to apply, including those with poor credit scores. Plus, we have the largest panel of lenders out of any broker in the UK.

Try our handy online car finance calculator today and discover just how My Car Credit can help you get behind the wheel today.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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.

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!

How Do Car Deposits Work?

Mother and child in park after discovering how car deposits work

Whether you love the affordability of personal contract purchase (PCP) or prefer the easy path-to-ownership of hire purchase (HP), many car finance agreements have the option to pay a deposit. Keep reading to discover how car deposits work, what you should consider when making one, and how they can influence your overall finance deal.

What is a car deposit?

A car deposit is the lump sum of cash you pay upfront when buying a car. It shows the seller that you’re serious about the purchase and secures the car until the full payment is complete or financing is finalised. Your deposit often influences the terms and conditions of your deal, affecting everything from monthly repayments to interest rates.

Purpose of a car deposit

Here’s a closer look at why deposits are so important when financing cars:

Securing the vehicle

A deposit ensures that the dealer holds the car for you and doesn’t sell it to another buyer. This is particularly important for popular models from manufacturers like Land Rover, Nissan and Mercedes-Benz, which can have long lead times. Deposits can also be a lifeline when you want to secure a car but need time to arrange financing.

Lower monthly payments

Deposits help offset the total purchase price of the vehicle, which lowers your monthly payments. Generally, the higher the deposit, the lower your monthly finance payments. This is because you’re reducing the principal amount that needs to be financed.

Improved finance terms

A decent deposit can affect the terms of your finance agreement and help unlock a lower interest rate. Lenders associate high deposits with low-risk borrowers, which can prompt them to offer more favourable loan conditions.

How much should you pay?

The amount you decide to put down as a deposit depends on several factors:

Price of the car: Higher-priced vehicles usually require a larger deposit. A common benchmark in the UK is 10-20% of the car’s total cost. For example, if you’re purchasing a car priced at £25,000, expect to pay a deposit of £2,500 to £5,000.

Dealer requirements: Some dealerships have set minimum deposit requirements.

Your budget: How much you can afford to pay upfront will often determine your deposit size. It’s important not to stretch your finances too thin by putting down more than you can comfortably afford.

Different types of deposits

Standard deposits: Many car financing deals start with a standard cash deposit.

Part exchange: If you’re trading in your old car, its value can sometimes be used as your deposit for the new one. This can be a convenient way to boost your deposit without additional cash.

No deposit deals: Some lenders offer ‘no deposit’ terms which allow you to skip an upfront payment entirely.

Find the right deal with My Car Credit

Whether you’re struggling to pull together a decent deposit or you’re ready to make a sizeable down payment on your next car, My Car Credit is here to help. As a car finance broker, we work with a panel of trusted lenders to find deals that suit every type of driver.

To get started, take a look at our handy online car finance calculator and get that dream of a new car underway.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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.

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!

Advantages of Cars on PCP with No Deposit

Car purchased PCP with zero deposit

With the average cost of medium-sized cars now as high as £36,000, it’s no wonder finance options like Personal Contract Purchase (PCP) have surged in popularity. They offer a flexible route to drive away in a new or used car without making a big dent in your bank account.

Instead of a one-size-fits-all model, the best brokers provide tailored PCP deals that fit individual budgets and lifestyle needs, including attractive no deposit options. Sound like this could be a good fit for you? Keep reading as we spotlight the key advantages of PCP no deposit plans.

1. Minimal initial outlay

One of the standout benefits of no deposit PCP plans is the low initial cost. This model allows you to get behind the wheel without needing a substantial upfront payment, freeing up your funds for other crucial expenses.

Particularly advantageous for drivers who don’t have immediate access to large amounts of cash, no deposit PCP plans dramatically lower the barriers to car ownership, making it more accessible and less financially daunting to drive away in a new car.

2. Improved cash flow management

With no major deposit commitments, your financial resources aren’t tied up from the get-go with PCP no deposit plans. This improves your cash flow and helps streamline the management of monthly expenses and savings. It’s an excellent strategy for maintaining financial flexibility and allows you to allocate funds to other priorities like home improvements, investments or even an emergency fund.

3. Access to better cars

PCP no deposit car finance could allow you to consider higher-spec models that may have been out of reach with traditional financing methods that require upfront payments.

For example, instead of settling for a compact hatchback the model could allow you to upgrade to a roomy SUV like a Land Rover Discovery Sport, Land Rover Discovery Sport or Nissan X-Trail.

Whether you prioritise space, safety features, comfort or cutting-edge technology, PCP can help you secure the keys to your dream car, without a huge deposit.

4. Fixed monthly payments

Cars on PCP with no deposit still come with the benefit of fixed monthly payments. This predictability helps with budgeting as you know exactly how much you need to set aside for your car each month, without any surprises.

5. Flexible end of agreement options

At the end of your no deposit PCP term, you have multiple options. You can return the vehicle, keep it by paying the final balloon payment or trade it in for a new car on another PCP plan, providing the car is in good working order and in line with the annual contracted mileage. This flexibility gives you the freedom to adapt to changing personal circumstances or preferences, without financial penalties.

6. Lower monthly payments

Because PCP plans are structured around only financing the depreciation of the car, rather than its full value, monthly payments can be lower compared to other finance methods like Hire Purchase (HP). This is even more beneficial when you choose cars on PCP with no deposit, as it spreads the cost even more effectively across the contract term.

7. Opportunity to drive a new car more often

PCP deals, especially those without a deposit, make it financially viable to change your car every few years. If you enjoy the thrill of driving the latest models like the Audi Q4 E-tron, Skoda Enyaq and Volkswagen ID 4, this is one of the top benefits of PCP.

How does it work? A PCP plan splits the cost of the car into more manageable chunks. You start with an optional initial payment, followed by fixed monthly payments over a set period, typically three to five years. At the end of the agreement, you have the option to either return the vehicle, keep it by paying a final ‘balloon’ payment (the Guaranteed Future Value of the car) or trade it in for a new model.

Any equity beyond the Guaranteed Future Value can be put towards a deposit for your next vehicle. This cycle ensures you can always enjoy the latest upgrades and technology, without big upfront costs.Top of Form

8. Warranty coverage and reduced maintenance costs

Nearly-new cars often come with some of their manufacturer warranty still left. This means less worry about unexpected repair costs, as most will be covered under your warranty. Driving a newer car also means fewer maintenance issues, a benefit that can further reduce your out-of-pocket expenses.

A final word on PCP

Don’t forget that whilst there are many advantages to a deposit-free PCP, it is still important only to borrow what is within your means. When you apply, the lender will perform a full credit check to confirm that the PCP is affordable for you.

Enjoy deposit-free PCP with My Car Credit

From preserving your capital and unlocking access to better makes and models, to streamlining your budget and building a good credit history, PCP no deposit plans are packed with perks that make getting into your next car both easy and economical.

Whether you’re upgrading from an older vehicle or entering the car market for the first time, a no deposit PCP plan is an excellent financial tool that can help steer your finances, and your journey to car ownership, in the right direction.

Why not see where it could take you? Check out our online car finance calculator to crunch those numbers and get on the road to your dream car.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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.

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!

How Does PCP Work at the End of the Term?

person circling end of PCP term in a calendar

There are many kinds of car finance. The right one for you will depend on your unique needs and circumstances.

One of the most common and popular types of car finance is PCP or personal contract purchase. But what is PCP car finance, and how does it work at the end of term?

This article will break down what PCP car finance is and what you can expect at the end of the term, helping you decide if this type of agreement is right for you.

What is PCP car finance?

PCP car finance is one of the most popular car finance agreements for UK drivers.

With PCP, you borrow a pre-determined amount of money against the cost of a new or nearly new vehicle. You then pay that money back via a series of affordable monthly instalments.

PCP is a popular type of car finance because the monthly repayments are lower compared to other car finance agreements. This is because you pay an initial deposit (although there are zero deposit options available for those with excellent credit) and then a significant amount of your borrowing is deferred to what’s known as either a balloon payment or an optional final payment.

The longer your PCP contract is, the lower the monthly payments will be, as you’re spreading the cost more thinly. That said, you can expect to pay more interest because you’re essentially borrowing money for longer.

The final balloon payment is a lump sum that you can choose to pay at the end of your agreement’s term. By making this payment, along with a small option to buy fee, you’ll own the car outright.

With PCP car finance, you don’t have to make this final payment at the end of term – it’s optional. You can alternatively choose to hand the vehicle back, provided the vehicle is in good working order.

Be aware that you will face mileage restrictions with PCP and can face penalties if you cause more than fair wear and tear to the vehicle.

How does PCP work at the end of term?

At the end of term on a PCP car finance agreement, you won’t own the car outright.

To do so, you’ll need to make an optional final payment – also known as a balloon payment.

The balloon payment is calculated based on what’s known as your car’s guaranteed future value, or GFV. The GFV is calculated according to the anticipated depreciation of your car over the term of your finance agreement. This number is based on variables, including your initial estimate of your yearly mileage, the vehicle’s make and model, and the length of your PCP agreement.

You’ll subsequently face penalties if you breach this predicted mileage or if you return the vehicle with excessive wear and tear. These penalties are applied because overuse of the car can impact its GFV.

The GFV is a fixed cost – it won’t rise or fall, even if the value of your car fluctuates.

As such, you can sometimes find yourself in the advantageous position of having a vehicle for which the GFV is higher than its actual value, which puts you in positive equity. We explain more about that below.

What to do at the end of your PCP term

You have three options at the end of a PCP agreement.

Make the balloon payment

If you want to own your car outright at the end of a PCP term, you can make the final balloon payment.

This is a great option if you don’t want to return a car that works well for you.

Return the vehicle

With PCP car finance, the final balloon payment is optional – you can choose just to hand the vehicle back.

This is a sensible option if your car is worth less than the GFV through no fault of your own.

Provided that you’ve kept the car in good condition and within your mileage restrictions, you can hand the vehicle back and won’t have any final payment to make to the lender at the end of your PCP term.

Part exchange the vehicle

You may find yourself in ‘positive equity’ at the end of your PCP term.

This means that your car is worth more overall than its GFV. You can leverage this positive equity to your benefit by making the final balloon payment and selling the vehicle for a profit.

Alternatively, you can part exchange the vehicle for a newer model and use this equity as a deposit towards your next car.

Many drivers like PCP car finance because it enables this process of part exchange, allowing them to regularly update their vehicle for a newer, higher spec option.

I can’t afford my end-of-term PCP payment – what do I do?

If you can’t pay the balloon payment at your PCP agreement’s end of term, you have some options.

Remember that this balloon payment is optional with PCP – you don’t have to pay it. You can instead choose to hand the vehicle back. But by doing so, you will be giving up your right to use the vehicle – not ideal if you need regular use of a car. You’ll also then need to find another car finance agreement to fund your next set of wheels.

Alternatively, you can secure balloon payment finance. This allows you to break down the balloon payment into manageable monthly instalments.

Discover if PCP finance is right for you with My Car Credit

PCP continues to be a popular car finance agreement for thousands of drivers around the UK.

Try our online car finance calculator to understand just how My Car Credit can find the right car finance for you.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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.

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!

Used Car Loan Process Explained

Steering wheel of a car using a used car loan

From sidestepping initial depreciation to avoiding long waitlists, used cars come with myriad benefits.

Like new models, car loans can be a great way to fund the purchase of a second-hand vehicle. Even better, navigating the used car loan process doesn’t have to feel like manoeuvring a busy roundabout during rush hour. With the right information, securing finance for a used car can be straightforward and stress-free. Whether you’re eyeing a sturdy family estate or a compact city runner, read on for an easy, six-step guide to the used car loan process.

Step 1: Assess your financial situation

Before you kickstart your loan application, take a good look at your financial health. Crunch your numbers and decide how much you can afford to pay each month while maintaining a comfortable lifestyle and keeping up with other financial responsibilities. Don’t forget to include other car-related expenses such as insurance, maintenance, and fuel.

It’s worth checking your credit score, which will play a significant role in the terms you might receive and your interest rate. A higher credit score can unlock more favourable loan conditions.

Step 2: Choose the right vehicle

Be mindful that your choice of vehicle can influence your loan terms and overall chance of approval. Older models or cars with high mileage might be harder to finance as they’re considered less reliable. Settling on a few options before approaching lenders can help streamline the used car loan process.

Step 3: Shop around for the best deals

Don’t accept the first loan offer you receive, even if it seems like a great deal. Compare rates from different lenders, including high street banks, credit unions and specialised auto finance companies. Working with a broker can be a great way to expand your horizons and shop around for the best deals when navigating the used car loan process.

Step 4: Understand the terms

It’s important to understand all the terms and conditions of your loan. Look beyond monthly payments and evaluate variables like interest rate, loan duration and any fees associated with early repayment or late payments.

Longer loan terms can make monthly repayments more affordable, but it’s important to remember that you’ll be making more payments and, therefore, paying more interest over time. Assess whether a longer car finance term is truly beneficial for you in the long run. To put things into perspective, the latest data from Experian reveals the average auto loan term for used cars is 67.4 months, while average car leases are just under 36 months.

Step 5: Finalise the loan and purchase your car

After choosing the best loan offer, it’s time to submit your paperwork. This typically involves providing proof of income, identity, and other key documents. Once the loan is approved, the funds are transferred directly to the dealership or your personal bank account, dependent on the type of agreement. You can then purchase your used car and get behind the wheel!

Step 6: Repayment and beyond

With the loan secured and the car keys in hand, focus shifts to repayments. Setting up automatic debits during the used car loan process can help avoid missed payments and potential fees. Consider making extra payments to reduce the interest amount and shorten the loan term.

Check out our fantastic online car finance calculator today to discover the right car finance for you.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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.

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!

PCP Term: Everything You Need to Know

Woman leaning out of a red car purchased on PCP

Car finance continues to appeal to drivers across the UK because it’s a flexible, affordable way of funding the purchase of a new, nearly-new or used set of wheels.

PCP car finance is one of the most popular types of auto finance agreement. With lower monthly repayments and flexible deposit options compared to other car finance choices, there’s a reason why drivers nationwide continue to choose PCP car finance.

With that said, PCP is a little more complicated than other car finance options because of the end-of-term options. We break down everything you need to know about a PCP term below.

What you need to know about a PCP term

Personal contract purchase (PCP) car finance is a flexible agreement that offers lower monthly repayments compared to other types of car finance.

With PCP, you’ll be splitting the price of your vehicle into three chunks – a deposit, your monthly repayments, and an optional final payment that’s also known as a balloon payment.

A PCP term is typically anywhere from 36 to 60 months, or three to five years. The longer the term of your PCP finance agreement, the lower the monthly repayments will be, as the cost is being spread over a longer term. However, you will generally pay more interest overall because you’re borrowing money for a longer period.

How does the end of a PCP term work?

With PCP, you won’t own the car outright at the end of your agreement, unless you choose to make an optional final payment, also known as a balloon payment, along with a small option to purchase fee,.

In fact, it’s because of this optional final payment that the monthly repayments on PCP are lower compared to other car finance agreements.

However, it does mean that you need to decide whether you want to make this final payment once you reach the end of your PCP term.

Bear in mind that this payment is optional with PCP – you don’t have to make it. You can always choose to hand the car back, and you won’t face any surplus charges, provided you haven’t caused undue damage to the vehicle and the vehicle is within the contracted mileage.

Alternatively, you can make the final balloon payment and you’ll formalise ownership of the vehicle. Balloon payment finance can help to make this final lump sum more affordable by breaking it down into manageable chunks – much like any other car finance agreement.

You can also choose to part exchange the vehicle for a higher spec model if you find yourself in ‘positive equity’. This happens when the car is worth more than the lender anticipated at the end of your PCP term and is a great option for drivers who like to update their car for a newer model.

Find out more about PCP finance today

If you are looking to start your car-buying journey, check out our online car finance calculator to crunch those numbers and take your first step to owning your next dream car.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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.

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!

Paying for a New Car with a Loan – How It Works

Couple stood next to a silver car bought using a car loan

Whether you’re buying your first car or upgrading an existing set of wheels, purchasing a new vehicle is exciting. But for many Brits, the question of how to bankroll it can be daunting.

This is where car loans come in. Suitable for both new and used vehicles, car loans and finance make paying for a new car convenient and accessible.

Want to know more about how an auto loan can help you navigate the road to a new car? Read on as we unpack the ins and outs of paying for a new car with a loan, exploring everything from the application process to repayment options.

Understanding car loans: the basics

Let’s start with the fundamentals. Car loans are a type of financing product specifically designed for auto purchases. They allow you to borrow a certain amount of money from a lender, which you then repay over time, usually with interest.

Choosing the right loan

When it comes to paying for a new car with a loan, one size does not fit all. Before applying, it’s essential to consider your individual circumstances and preferences. Here are some key factors to keep in mind when vetting lenders and loan products:

Loan amount: Determine how much you need to borrow based on your budget and the cost of the car, as well as any additional fees.

Interest rate: Shop around for competitive interest rates to ensure you’re getting the best deal possible. Variables like your credit score can impact the interest rate offered when paying for a new car.

Loan term: Agree on the length of the loan, keeping in mind that longer terms can unlock lower monthly payments but higher overall interest costs.

Additional fees: Ask about any additional charges, such as late payment fees. Some lenders may also charge extra for early repayments. Ask lots of questions to avoid unwelcome surprises down the line.

Types of car loans

When exploring car financing options, you’ll see various types of loans tailored to different needs. There are a few acronyms to decipher, but really, it’s quite straightforward, and there’s no need to be intimidated. Here’s a breakdown of the main ways of paying for a new car in the UK with a loan.

Hire Purchase (HP): With HP loans, you pay a deposit upfront (although there are plenty of zero deposit options too), followed by fixed monthly payments over the lifetime of the agreement. Once you’ve made all the payments, you own the car outright. HP is a clear-cut financing option suitable for those with an end goal of full ownership of the vehicle.

Personal Contract Purchase (PCP): PCP lowers monthly payments by deferring a significant chunk of the loan amount to the end of the agreement. At the end of the term, you can choose to return the car, provided the vehicle is in good condition and within the contracted mileage, trade it in for a new model or make a final ‘balloon payment’ along with a small option to purchase fee to own the vehicle outright.

Personal Contract Hire (PCH): PCH is similar to PCP but involves leasing the car rather than owning it. You pay fixed monthly payments for the duration of the lease and return the car at the end of the agreement. It’s a great option if you love to drive the latest models. However, PCH agreements often include mileage restrictions and wear-and-tear guidelines.

Personal Loans: Personal loans can be used for various purposes, including paying for a new car. You receive a lump sum of money from the lender, which you then repay with interest over time. Personal loans offer flexibility, but the options may be limited for those with a poor credit profile.

The application process: what to expect

Once you’ve done your homework and selected a suitable loan, it’s time to apply. Here’s what you can expect during the application process:

Documentation: Prepare requested documents, including proof of identity, income verification and details about the car you want to purchase.

Credit check: The lender will request a credit report to evaluate your status and set the terms of the loan. A healthy credit score can improve your chances of approval and result in more favourable terms, including lower interest rates.

Approval decision: After reviewing your documents and credit rating, the lender will either approve or decline your application. If approved, you’ll receive details about the loan terms, including the interest rate, amount, and repayment schedule.

Loan pay-out: Once you’ve accepted the loan terms, the finance company will transfer funds to the seller or dealership, allowing you to complete the purchase of your new set of wheels.

Paying for a new car: managing your loan responsibly

With the loan secured and a set of keys in your hands, it’s time to focus on repayments. Here are some tips for managing your loan responsibly:

Budgeting: Incorporate your loan payments into your monthly budget to ensure you can afford them comfortably. Prioritise your payments over other less-important expenses to avoid defaulting on your loan and dragging down your credit score.

Automatic payments: Consider setting up automatic deposits when paying for a new car. This will ensure your loan payments are made on time. This can help you avoid late fees and maintain a stellar payment history.

Extra payments: If possible, consider making extra payments towards your principal loan amount. This will help you pay off the loan faster and reduce the total interest paid.

Communication: If you run into financial difficulties or anticipate missing a payment, communicate with your lender proactively. They will be more understanding than you might think and can usually offer assistance or alternative payment arrangements to help you avoid defaulting.

Drive towards success with My Car Credit

Whether you’re looking to lease a brand-new Nissan Leaf or work towards full ownership of a used Toyota Highlander, paying for a new car with a loan can open new doors when it comes to getting behind the wheel. At My Car Credit, we’re riding shotgun to help you understand the basics of car loans, choose the right product for your needs, navigate the application process, and manage repayments responsibly – so you can get behind the wheel with confidence.

Try out our fantastic online car finance calculator to see an instant breakdown of your expected monthly payments, typical rate and total payable.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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.

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!