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Balloon Payments Explained: What, Why & How

Black Tesla driving down the road bought with a Balloon Payment

Car finance has lots of confusing jargon – and a balloon payment is one example. Consider this article your ultimate guide to the what, why and how of balloon payments.

What is a balloon payment?

There are many different kinds of car finance available, depending on your needs.

Certain agreements allow you to make a final lump sum (the balloon payment) at their end. Once you’ve paid this one-time lump sum, along with an option to buy purchase and possible admin fees, the car belongs to you.

How does a balloon payment work?

A balloon payment works as a one-off lump sum you can pay at the end of your car finance agreement if you want to own your car.

With PCP, the one-off balloon payment is optional. You don’t have to pay it if you want to hand the car back or opt for a new finance agreement on another car.

The balloon payment is calculated based on the expected depreciation of your car (also known as the Guaranteed Minimum Future Value). It’s a fixed cost, meaning that no matter how much the value of your car fluctuates, it won’t rise.

Why choose car finance with a balloon payment?

There’s more than one type of car finance that allows you to own the car outright at the end of your agreement. With HP (hire purchase), you can own the car without making a final balloon payment (although there’s usually some admin fees to pay).

With that in mind, why would you want to choose car finance with a balloon payment?

HP finance has many benefits. However, because you’re not paying a final balloon fee, you’ll make higher monthly repayments compared to a PCP agreement.

A car finance option with a balloon payment is, therefore, a better choice for you if you want lower monthly repayments and if you regularly update your wheels.

What happens if I can’t afford my balloon payment?

If you’re keen to own your car outright at the termination of your finance agreement but can’t afford the balloon payment, don’t panic.

At My Car Credit, we understand that not all drivers have the cash for their balloon payment. That’s why we have balloon payment finance. With this agreement, you’ll break down your final balloon payment into manageable monthly instalments.

Apply with balloon payment finance with My Car Credit

No matter your circumstances, you can check if you are eligible for car finance with our handy online calculator. Our initial credit check is only a soft search, too – meaning it won’t impact your credit profile! Please note however that should you progress, some lenders may perform a hard search on your credit file.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£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!

or call 01246 458 810

How Do Balloon Payments Work?

Red and black cars bought using a Balloon payment

One of the many benefits of car finance is its flexibility. The range of car finance agreements means you’re guaranteed to find one that works for your unique needs and circumstances.

With that said, this range of options may make your decision feel overwhelming – and that’s not to mention the jargon involved in any choice!

This article will break down what a balloon payment is, how they work, and whether they’re right for you. By demystifying one of the more confusing terms associated with car finance, we’ll help you to decide whether car finance with a balloon payment is right for you.

What is a balloon payment?

In car finance terms, a balloon payment is a one-off lump sum that you pay to your lender at the end of certain finance agreements.

Both Personal Contract Purchase (PCP) and lease agreements have a final balloon payment that you can make at the agreement’s end. Making this payment means that you’ll own the car outright.

How do balloon payments work?

With both PCP and lease agreements, you’ll face a balloon payment at the agreement’s end (plus an option to purchase fee and possible admin fees).

Be aware that with PCP, a balloon payment is optional – you don’t have to pay it. You can choose to hand the car back to the lender or opt for a new finance agreement on another car. With a lease agreement, a balloon payment is not optional.

The amount you’ll pay for your balloon payment is calculated according to your lender’s estimation of your car’s depreciation. This is known by many names – the ‘Guaranteed Future Value’ (GFV), ‘Guaranteed Minimum Future Value’ (GMFV) and ‘Residual Value’ (RV). We’ll call it by the GMFV here.

The GMFV predicts the value of your car at the end of your finance agreement. Your lender will estimate this based on factors including the vehicle make and model, yearly mileage estimates, and the length of your agreement.

The GMFV (the balloon payment) is a fixed cost that’s written into your car finance contract. It can’t fluctuate based on your car’s actual value.

As such, even if your car is worth less at the end of your agreement than the GMFV estimation through no fault of your own, you don’t have to pay to make up the difference. Alternatively, if your car is worth more, you can find yourself in positive equity. This allows you to either make the final payment and sell the vehicle on for a profit – or put that equity towards another car finance agreement with the same lender.

What are the benefits of car finance with a balloon payment?

Don’t forget to check out our guide to the eight advantages and disadvantages of a balloon payment for a more comprehensive breakdown of their pros and cons.

Lower monthly payments

Compared to car finance agreements like Hire Purchase (HP), car finance with a final balloon payment has lower monthly payments.

You get to own your vehicle

If you love your vehicle and want to keep it, you can! Otherwise, you have two options available to you. You could part-exchange the vehicle for a newer, more modern vehicle, or simply hand the keys back, as long as the vehicle is in good condition, in line with the contract terms and within the agreed mileage.

What are the drawbacks of car finance with a balloon payment?

Usage restrictions

Car finance agreements like PCP do have vehicular usage restrictions. These may include a yearly mileage limit, and you’ll pay extra if you incur excessive damage.

These restrictions are established because of your lender’s prediction of your car’s GMFV. If you breach these restrictions, you can impact this estimation, and will be penalised.

Payment shock

A car finance agreement with a balloon payment means you’ll pay lower monthly instalments. However, this can mean that the balloon payment is expensive, and you may find yourself experiencing payment shock.

If you do find yourself in this position, you can benefit from balloon payment finance.

Not ideal for those with lower credit ratings

At My Car Credit, we understand that not all drivers have exceptional credit scores, and thanks to our wide range of lenders, we can accommodate all kinds of credit profiles.

If your credit score is less than ideal, you’re less likely to qualify for car finance with a balloon payment. Therefore an agreement without a balloon may be more suitable.

What happens if you can’t afford your balloon payment?

There can be any number of reasons why you may find yourself unable to pay your finance agreement’s final balloon payment.

My Car Credit understands that not all drivers may have the cash upfront to be able to make your balloon payment. Balloon payment finance provides one solution, working just like a car finance agreement. By breaking down the balloon payment’s lump sum into manageable monthly repayments, you have better budgetary control.

Use our online calculator to receive an instant no-obligation decision on balloon payment finance. Our initial credit check won’t impact your score, and we’ll leverage our large panel of lenders to find a deal that’s best for you. Please note that should you progress, some lenders may perform a hard search on your credit file.

Is a balloon payment right for me?

Car finance agreements with a balloon payment have various advantages. From lower monthly repayments to a guarantee of your vehicle’s future value, having an agreement with a balloon payment can be beneficial. Plus, with PCP finance, you don’t have to make the final lump sum – you can enter another finance agreement on a different car with the same lender. This is great for people who like to regularly update their wheels.

With that said, if you’ll struggle with usage limits or are prone to damaging your car, you may need to consider your options. Plus, you’ll have to evaluate your financial situation. Plan ahead to ensure that you can make the final balloon payment or consider balloon payment finance to avoid facing payment shock.

Wondering if you are eligible for My Car Credit car finance?

Do the maths on your next car with our handy online calculator and discover how My Car Credit can help you find the right car finance.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

What Does ‘Finance’ Mean When Buying a Car?

I want to buy a car on finance, how much can I borrow?

What is CS Car Finance?

Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£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!

or call 01246 458 810

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8 Advantages and Disadvantages of a Balloon Payment

Shiny car bought using a balloon payment

How do you know if a car finance agreement with a balloon payment is right for you? The first step is to understand the advantages and disadvantages of a balloon payment. Read on as we look at 4 advantages and 4 potential disadvantages.

What is a balloon payment?

One of the many benefits of car finance is the range of different agreements available. The right one for you will depend on your needs and circumstances. Some types of car finance have an optional lump sum that you can pay at the end of your agreement.

This one-off lump sum is known as a balloon payment. By making this payment, you’ll own the car outright.

Not all car finance agreements have the option of a balloon payment, but some do.

Personal contract purchase, or PCP, is one type of car finance agreement with a balloon payment. That said, this balloon payment isn’t obligatory – it’s optional. If you don’t want to own the car at the end of your finance agreement, you can always hand it back or choose another finance agreement on a different car.

Any balloon payment is calculated on the expected depreciation of your car. This depreciation refers to the difference in value between when you first purchased the car and when you come to the end of your car finance agreement.

In the context of a balloon payment, this depreciation value is referred to as the Guaranteed Minimum Future Value or Residual Value.

The GMFV or RV predicts what the car will be worth at the end of an agreement, based on your usage estimates. The factors that will impact its value include the make and model of the car, your yearly mileage estimates, and the length of your finance agreement.

The GMFV or RV is a fixed cost – it won’t fluctuate based on your car’s value.

Advantages of a balloon payment

It’s possible to find car finance that allows you to own the car at the end of your agreement without needing to pay a final balloon payment. Hire purchase or HP is one such agreement.

That said, there are real advantages to choosing balloon payment financing – we break these down below.

1. Lower monthly repayments

Other car finance agreements like Hire Purchase (HP) give you the option of owning the vehicle at the agreement’s end.

However, with HP, you don’t pay a final balloon payment. As such, you’ll face higher monthly repayments than you would with a car finance agreement that has a final balloon payment.

2. Fixed cost

A balloon payment is calculated based on your lender’s estimation of depreciation in your car’s value – the Guaranteed Minimum Future Value or Residual Value. This is a fixed cost – it won’t fluctuate throughout your car finance agreement, even if your car’s value changes.

Sometimes, finance companies may set the future value (its GMFV or RV) of your car too high, meaning it can depreciate in value more than expected, leading to a position of negative equity.

However, the balloon payment is a fixed cost. As such, if you find yourself in negative equity through no fault of your own (not breaching usage restrictions), you still won’t face any additional fees.

3. Potential for positive equity

Your car’s value may depreciate less than was predicted.

If your lender undervalues your car’s GMFV or RV, you could, therefore, find yourself in positive equity. This means that you find yourself at the end of an agreement with a vehicle that’s worth more than your finance company estimated.

You can then choose to make the final balloon payment and sell the car on for a profit. Alternatively, if you stay with the same finance company, you can put this positive equity towards the deposit on a new vehicle.

4. You get to own your vehicle!

If you love your car and want to keep it, you can!

With other car finance agreements like personal contract hire (PCH), you’re only leasing the car. So, you won’t own it outright at the end of your agreement.

If you’re keen on modifying your vehicle, you’ll want a car finance agreement that enables you to own the car outright at the contract’s end. Choosing an agreement with a final balloon payment is a great way of achieving this.

What’s more, if your car finance agreement has an optional balloon payment that you don’t want to make, you have two options available.

You could part-exchange the vehicle for a newer or different model or simply hand the keys back, as long as the vehicle is in good condition, in line with the contract terms and within the agreed mileage.

Disadvantages of a Balloon Payment

A car finance agreement with a balloon payment isn’t for everyone.

If you’re not interested in paying this final lump sum, there are plenty of car finance options with no balloon payment out there.

Don’t forget that if you’ve got questions about which car finance will best suit you, you can always contact our friendly team of Car Credit Specialists.

5. Usage Restrictions

Car finance with a final balloon payment typically requires usage restrictions. You may be expected to keep under a certain mileage, and you are expected to return the car in good condition at the agreement’s end.

If you go over these usage restrictions, you’ll be penalised. This is because your lender will base your car’s depreciation value on these usage restrictions. Breaching them will impact the accuracy of this value, which can have financial ramifications.

6. Not Ideal for Those With Lower Credit Scores

If your credit score is less than ideal, you’re unlikely to qualify for car finance agreements with a balloon payment.

Therefore an agreement without a balloon may be more suitable if your credit rating is low.

My Car Credit also offers poor credit car finance for individuals with less-than-perfect credit reports.

We combine a wide panel of trusted lenders with a sensible approach to help you find the right car finance agreement for your needs and circumstances.

Just because your credit score isn’t perfect, doesn’t mean you can’t find car finance – for example, options like PCP can make car finance more accessible thanks to lower monthly repayments.

7. Not Optional for Lease Agreements

With PCP, the balloon payment is optional. However, this payment isn’t optional with a lease purchase agreement – you’ll have to pay the final lump sum.

8. Expensive Final Payment

The balloon payment can be a hefty sum. You may not have access to the cash needed to make this payment.

However, you can always choose to refinance your balloon payment in this instance.

Our balloon payment finance allows you to break down the sum of the balloon payment into manageable monthly instalments. Use our free balloon payment finance calculator to find out more.

How do I Refinance My Balloon Payment?

Balloon payment finance is a way of refinancing your balloon payment.

In essence, you’ll be breaking down the lump sum into affordable monthly payments. You’ll also have an extended loan time, and you may be able to access better interest rates.

Wondering if you are eligible for My Car Credit car finance? Do the maths on your next car with our handy online calculator.

You can also use our online application form to kickstart your car finance journey. You’ll receive a no-obligation quote in minutes, and discover how we can help you find the car you want at a budget you can afford.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Bank Loan or PCP: Which is Right for You?

How Much Car Finance Do I Qualify For?

How to Strengthen Your Eligibility for Car Finance

Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£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!

or call 01246 458 810

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What is the Oldest Car a Bank Will Finance?

Love the charm and character of older cars but unsure about whether they’re eligible for finance? In this hands-on guide we’ll answer “what is the oldest car a bank will finance”. Our goal – to help you get behind the wheel of a car with its own unique story to tell.

The golden numbers

While there’s no hard and fast rule about what the oldest car a bank will finance is, 10 years is generally considered the maximum age for standard agreements. Most high street banks require cars to be no more than 10 years old, with no more than 100,000 miles on the odometer.

Exceptions to the rule

While 10 years and 100,000 miles are considered the maximums for bank-funded auto finance, there are some exceptions to the rule. For example, classic cars are often eligible for finance agreements. What’s the difference between ‘classic’ and ‘older’ cars? There are similarities between the two, however most banks see them as very different candidates for auto finance.

Defining a ‘classic’ car

According to HMRC, classic cars must be at least 15 years old and have a minimum value of £15,000. This is ultimately what sets classics apart from older vehicles. Unless the car meets these prerequisites, banks will generally be reluctant to approve auto finance.

Prefer the gleam of a newly polished hood ornament over the glow of a next-gen touchscreen dashboard? You’re not alone. The UK is a nation of classic car enthusiasts, with the latest stats from the Federation of British Historic Vehicle Clubs (FBHVC) revealing there are more than 1.5 million classics currently registered in the UK.

Dreaming of securing the keys to a pristine pre-war Bentley or a British-built Lotus Elise? Read on to find out more about what the oldest car a bank will finance is and how auto loans work for classic vehicles.

Understanding classic car finance

Unlike traditional auto loans, classic car finance operates within a niche market. Agreements are often tailored to meet the unique needs of vintage automobile enthusiasts, which means financing a classic car can be a little different from the usual process.

Factors influencing classic car finance

Several factors come into play when determining the oldest car a bank will finance. These can include:

Age of the vehicle

One of the first variables banks assess is the age of the classic car. What is the oldest car a bank will finance? While there’s no set rule on the maximum age of a vehicle eligible for financing, most banks tend to favour classics from the post-war era onwards. That said, some specialty lenders may extend financing for exceptionally rare or historically significant vehicles, regardless of age.

Condition

The condition of the classic car plays an important role in securing financing. Banks are more likely to finance well-maintained or meticulously restored classics with documents to back up their past.

Rarity

Rarity, historical significance and desirability among collectors can increase the likelihood of securing finance for older vehicles.

Appraisal and valuation

Before extending financing for a classic car, banks often request a comprehensive appraisal and valuation of the vehicle. This helps determine the market value, authenticity and overall condition of the classic car. Why does this matter? It helps provide banks with confidence in the value of the asset they’re financing and potential resale value.

Types of classic car financing

Classic car financing options vary depending between lenders, so it’s important to do your research and find the right fit. Banks generally take a more conservative approach to finance and stick with popular options like Hire Purchase and Personal Contract Purchase.

Hire Purchase (HP)

This option sees you make a deposit upfront, followed by fixed monthly payments. These payments cover the full purchase price of the classic car, plus interest. Once the final payment is made, legal ownership of the vehicle is transferred to the borrower.

Personal Contract Purchase (PCP)

PCP offers lower monthly payments than HP, as you effectively lease the classic car for a set period of time. At the end of the agreement, you have the option to return the vehicle, trade it in for a different model, or make a balloon payment along with and option to purchase and possible admin fees, to take ownership.

Personal Loans

Personal loans can be a good way to finance a classic car purchase and provide lump-sum financing for the total cost of the vehicle. In exchange, you’ll commit to fixed interest rates and repayment terms.

Navigating your classic car finance journey

From sleek Jaguar E-Types to James Bond-worthy Aston Martins, classic cars are genuine head turners. However, complications can arise when attempting to secure finance. Here are some expert tips on how to improve your chances of success.

Research and due diligence

Before approaching a bank for classic car financing, take the time to thoroughly research the make, model and historical significance of the vehicle. Gather as much documentation as possible, including appraisal reports, maintenance records and ownership history. The more documents you have to support your finance application, the better!

Consider specialty lenders

Feeling disheartened after your application for auto finance has been knocked back? Remember, the buck doesn’t necessarily stop with high street banks. Consider working with a broker like My Car Credit to unlock access to specialty lenders with experience financing classics. Unlike banks which often adopt a conservative and inflexible approach, brokers work with a wide range of lenders, including lenders willing to finance vintage automobiles.

Insurance requirements

Your classic car financing agreement may come with specific insurance requirements to protect the value of the asset and minimise risk for the lender. For this reason, many lenders will insist you have comprehensive classic car insurance in place before finalising the agreement.

The bottom line on financing old cars

Ultimately, there’s no definitive answer to “what is the oldest car a bank will finance?” That said, there are some benchmarks to keep in mind. Banks will generally knock back applications for auto finance if the car is more than 10 years old, with more than 100,000 miles on the odometer. Unless the car qualifies as a ‘classic’, which means it must be at least 15 years old and have a minimum value of £15,000.

Secure the keys to a classic with My Car Credit

Got your heart set on a classic car? Whether you’re dreaming of a mid-century Chevrolet or a Mini in mint condition, My Car Credit is here to help you enjoy the thrill of vintage motoring. We work with a large panel of lenders to maximise your chances of success, with classic car finance options including high street banks as well as non-traditional lenders.

Try our handy online finance calculator to find out more about your options.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£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!

or call 01246 458 810

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How Does Classic Car Financing Work?

Whether it’s a first generation Ford Escort or an iconic Porsche 911, classic cars hold a special place in the hearts of motoring enthusiasts. Yet for many Brits, the path to classic car ownership can seem complex, especially when it comes to financing. Not to worry, we’re here to help.

In this practical guide, we’ll answer all your questions about how classic car financing works. We’ll unpack how classic car loans work, break down the application process and explore the different financing options available in the UK.

Understanding classic car financing

How does classic car financing work compared to standard auto loans? While the pair share many similarities, it’s important to understand the differences between the two. Classic car loans are designed with vintage automobiles in mind, which means there are some unique factors that come into play:

Age

In general, a car must be at least 15 years old to be considered a classic. This is the age cited by HMRC in the official definition of a classic car.

Vintage appeal

While cars become eligible for classic status at 15 years or older, lenders also factor in vintage appeal. Vehicles from the post-war era, like the much-loved Morris Minor and iconic Aston Martin Atom, are generally favoured by lenders. That said, it’s not unusual for exceptions to be made for exceptionally rare or unique models.

Condition

The overall condition of cars plays an important role in securing finance. For example, lenders are far more likely to finance a Morgan Plus 4 roadster in mint condition than the same model in need of serious work.

Documentation

Lenders won’t always take your word for it when it comes to factors like age and condition. This is where documentation comes in useful. Anything related to the vehicle’s background, service history and overall vintage appeal can help improve your chances of securing classic car finance.

Market value

Lenders will usually assess the market value of the classic car before extending financing. Potential appreciation may also be considered. Typically, lenders will want to see a value of at least £15,000. Factors like condition, rarity, historical significance, documentation and desirability can all influence the appraised value of the car and ultimately, eligibility for finance.

Classic car financing options

Now you know more about how classic car financing works, let’s take a closer look at some of the different payment plan options available in the UK. Like standard auto loans, classic car finance agreements are designed to cater to different needs and preferences.

Hire Purchase (HP)

Simple and easy, HP agreements start with an initial deposit followed by fixed monthly payments to repay the total purchase price of the classic car, plus interest. When the contract is complete and the loan is fully paid off, legal ownership of the vehicle transfers to the driver. The HP model essentially sees the lender purchase the car outright, then provide the borrower with a structured payment plan.

Personal Contract Purchase (PCP)

Lower monthly payments make PCP one of the most popular ways to finance a classic car. Instead of covering the total purchase price of the car, monthly payments cover the cost of renting the vehicle from the lender for a set period, generally three to five years. At the end of the contract, you have the option to make a ‘balloon’ payment to cover the remaining value of the vehicle and purchase the car outright. Alternatively, simply return the vehicle to the lender, as long as the vehicle is in good condition, in line with the contract terms and within the agreed mileage.

Personal Loans

How does classic car financing work for a personal loan? This option sees lenders extend lump-sum financing to cover the full purchase price of a classic car. As well as the total purchase price, monthly repayments factor in interest and other fees.

Get behind the wheel of a classic with My Car Credit

Ready to embrace the joys of vintage motoring? At My Car Credit we specialise in securing auto finance loans for all kinds of vehicles, including classics. Give our online finance calculator a try and find out how My Car Credit can help you obtain that classic car of your dreams.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

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Balloon Payments Explained: What, Why & How

Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£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!

or call 01246 458 810

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Car Finance or Personal Loan – Which is Best for You?

Couple comparing Personal Loan and Car Finance

Millions of new and used vehicles are purchased using finance every year in the UK. When securing funds, most motorists choose between two popular options – car finance or personal loan. Both are designed to get you behind the wheel of your dream car, though each option has its own pros and cons.

Car finance: options and ownership

Car finance is an umbrella term used to describe several types of auto loans, including options like Hire Purchase (HP), Personal Contract Purchase (PCP), Personal Contract Hire (PCH) and Conditional Sale. Each option is slightly different in terms of deposits, monthly payments, legal ownership and end-of-term options.

Pros of car finance:

Lower initial costs: Initial deposits are generally lower for car finance, compared to purchasing a vehicle outright. This can be an advantage if you want to retain capital and keep your upfront expenses as low as possible.

Flexibility in ownership:

What’s more flexible, car finance or loan? Depending on the type of agreement, car finance generally offers options at the end of the term, including owning the car outright or upgrading to a new model.

Access to new models: Car finance options like Personal Contract Hire are designed to get you into the driver’s seats of the latest models. The chance to drive newer or more expensive models that may otherwise be outside your budget is a major benefit for some motorists.

Maintenance included: Some car finance options include maintenance packages which takes the stress out of ownership.

Cons of car finance:

Monthly payments: While monthly payments may be lower, they accumulate interest over time which can increase the total cost of your loan.

Ownership delays: With some car finance options, you don’t own the car outright until the final payment is made. This can be an important factor when deciding between car finance or personal loan.

Personal loan: simple and straightforward

A personal loan sees you borrow the full amount needed to purchase a car outright. You drive away as the legal owner of the vehicle and make monthly repayments to your lender to cover the cost of the loan, plus interest.

Pros of personal loans:

Instant ownership: With a personal loan, you own the car from day one. For many motorists, this makes the car finance or loan decision easy.

No mileage restrictions: Unlike some car finance agreements which come with mileage restrictions, personal loans give you the freedom to drive as much as you like without worrying about penalties.

Cons of personal loans:

Higher interest rates: Unless you have a stellar credit score, personal loans can come with higher interest rates compared to some car finance options.

Strict eligibility criteria: Securing a personal loan generally requires a good credit score, and eligibility criteria can be more stringent.

Higher initial costs: Personal loans often call for larger upfront payments.

Enjoy tailored auto finance with My Car Credit

Need help deciding between car finance or loan? Want to find out if car finance is easier to get than a loan?

At My Car Credit, we appreciate that every motorist is unique. That’s why we work with every client to build tailored financing solutions to match your budget, personal preferences and ownership goals.

Give us a call on 01246 458 810 to find out more about car finance options or email us at enquiries@mycarcredit.co.uk.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Can You Pay Monthly for a Used Car?

What is Hire Purchase? – Simple HP Explanation

Can You Get Cars on HP with No Deposit?

Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£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!

or call 01246 458 810

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

When it comes to car finance, a standardised approach doesn’t always work. Every motorist is different, which is why lenders offer a variety of models, including personal contract purchase (PCP) and hire purchase (HP). Both are hugely popular in the UK and used to finance everything from budget-friendly hatchbacks to luxury EVs.

Each option offers unique benefits, so how do you decide which is right for you? In this comprehensive guide, we’ll cover everything you need to know about PCP vs HP, including how they work and the key differences between the two financing options.

Understanding the difference between HP and PCP finance

Let’s start with a breakdown of each financing option:

Personal contract purchase (PCP)

In a personal contract purchase agreement, the goal isn’t to own the car outright. Instead, you effectively rent it for a set period, typically two to four years. Your monthly payments cover the car’s depreciation over this period, as well as interest.

At the end of a PCP finance agreement, you have three choices:

Return the car
Trade in the car for a new model, moving into a new car finance agreement
Make a large balloon payment to buy the car outright

Balloon payments are lump sums agreed on at the start of your contract and calculated using the guaranteed minimum future value (GMFV) of the car. The minimum guaranteed future value indicates how much a car will be worth by the end of a PCP finance agreement. Making the final balloon payment means paying off this amount to own the car for good.

Hire purchase (HP)

Hire purchase is a more straightforward type of car finance and puts you on a direct path to owning the car outright. The total cost of the car, minus any deposit paid upfront, is spread over fixed monthly payments for a hire purchase agreement. Once you make the final payment, the car is yours to keep. There’s no need for a balloon payment at the end of the contract and you don’t have the option to return the vehicle. If ownership is your end goal, HP finance is a great option.

PCP vs HP: how the two compare

Now you know more about how each auto finance model works, let’s take a look at how they shape up against each other.

Ownership

PCP finance offers flexibility but stops short of ownership unless you’re willing to make a final balloon payment. As mentioned earlier, you can choose to return the car at the end of the agreement. This makes PCP an attractive option for motorists who love to upgrade to a new model every few years.

The option to own is an important difference between HP and PCP. Once the final payment is made on a HP agreement you become the legal owner of the vehicle. This makes HP finance ideal for motorists with long-term ownership goals.

Monthly payments

Lower monthly payments are one of the top benefits of PCP. They’re generally lower than HP payments as you’re covering the car’s depreciation, not its full value. This is due to the balloon payment, which covers the actual car cost should you want to buy outright.

Monthly payments are higher for HP agreements as you’re paying off the entire cost of the car, plus interest. You may prefer to save money with PCP finance compared to HP repayments and put money aside for the final lump sum.

Balloon payment

The need for a balloon payment at the end of a PCP agreement can catch some motorists off guard. As explained above, it covers the cost of the vehicle which isn’t included in PCP repayments. It is optional though, so you can choose to move to a new PCP finance deal with a car upgrade or just return the vehicle.

In comparison, monthly payments made on HP agreements are designed to cover the full cost of the car which means you won’t be hit with a lump sum at the end of your contract.

Mileage limits

PCP agreements often come with mileage restrictions, with additional charges incurred for exceeding your car’s mileage cap. The reasoning behind this is that the finance company wants to protect the value of new cars in case they’re returned at the end of the agreement. It’s well known that higher mileage means lower value, especially for newer cars.

Your mileage limit will typically be from 5,000 to 10,000 miles per year. This can make PCP limiting for high-mileage motorists. However, going over the agreed mileage limit doesn’t mean you can no longer use the car – it simply means you’ll pay extra charges (which will be outlined in your PCP agreement).

With HP, you’re free to drive as much as you like without worrying about mileage restrictions or penalties. That’s because, all being well, you will be the eventual owner of the car at the end of the HP finance term. For many motorists, this freedom makes the HP vs PCP decision easy.

Customisation options

Since you’re essentially leasing the car in a PCP agreement, there may be restrictions on customisations. That’s because the finance company may be getting the car back at the end of your term. It makes it harder for them to lease or sell it if it has custom features.

HP gives you the freedom to modify your vehicle. Whether it’s a custom paint job, tinted windows, tech upgrades or seating configuration, this is a big difference between HP and PCP. If you like to customise cars, hire purchase agreements are probably the car finance option for you.

Similarities between these two car finance options

While these two types of car finance have their differences, it’s worth noting the ways in which they’re similar too. These include:

Manageable monthly payments – Both PCP and HP finance make it more affordable to drive a new car, breaking down the cost into monthly repayments.

Term length – When comparing car finance options, PCP and HP finance both have similar repayment terms. You can typically expect to make monthly payments for 3-5 years, though shorter and longer deals are available.

Initial deposit – PCP and HP finance both require an initial deposit in most cases. This reduces the amount you’re borrowing which results in lower monthly payments. A smaller deposit will result in higher monthly instalments and could even affect the interest rate you’re offered.

New cars – Both of these options make it practical to drive a new car. Rather than facing one big lump sum, you’ll break the cost down into manageable monthly instalments. However, you can use PCP and HP for both new and used cars.

The bottom line on HP vs PCP

Ultimately, there’s no hard and fast answer when it comes to the PCP vs HP debate. What’s best for you depends on your individual preferences, financial situation and driving habits. PCP offers flexibility, affordability and options at the end of your contract, while HP prioritises ownership. Be sure to factor in your long-term plans when deciding and consider how each option aligns with your personal goals.

Need a hand deciding which option is right for you? At My Car Credit, we pride ourselves on offering friendly, personalised support to British motorists. This includes helping you understand the difference between HP and PCP. As well as PCP and HP, our team can get you up to speed on other popular car finance options, including conditional sale and personal contract hire (PCH).

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Can You Get Cars on HP with No Deposit?

Bank Loan or PCP: Which is Right for You?

PCP Term: Everything You Need to Know

Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£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!

or call 01246 458 810

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What is a Conditional Sale for a Car?

While prices have dropped a little in 2023, the average cost of a new small car in the UK sits at more than £21,000. Opt for larger models and RRP increases significantly. Combined with issues like inflated petrol prices and the cost of living crisis, this figure puts car ownership out of reach of most motorists. With many Brits feeling the pinch, it’s no wonder auto finance options like conditional sale have surged in popularity over recent years.

There’s plenty to learn when it comes to car finance and conditional sale is one of many terms you may recognise. But what is a conditional sale exactly and how can it help you secure the keys to your dream car? Read on as we dissect everything you need to know about conditional sales, including how agreements work, the benefits and what to expect when signing a contract.

Understanding the basics of conditional sale

What is a conditional sale and how can it help you own your own car? The term describes a popular finance model that allows you to spread the cost of car ownership over a set time period, usually between two to five years. It’s essentially a personal loan that’s secured against the vehicle and funded by a lender. The finance provider pays for the car outright and maintains legal ownership of the vehicle for the duration of the contract.

As the borrower, you make regular repayments to the lender which cover the total cost of the car, plus interest accrued over time. After making your final payment, ownership of the vehicle is transferred to you. The model is straightforward and transparent, making conditional sale a great option for Brits who like to keep things simple. It offers a direct route to ownership without complications like mileage limits, wear and tear penalties or options to return the car or renew the contract at the end of the agreement.

Whether you’re looking at compact urban commuters like the Ford Fiesta or spacious, family-friendly SUVs like the Hyundai Tucson, Conditional Sale can be used to finance a huge range of makes and models. This flexibility is another key benefit associated with conditional sales.

Conditional sale vs hire purchase

What is a conditional sale agreement and how does it compare to hire purchase? If you’re familiar with the car finance landscape, you may draw comparisons with conditional sale and hire purchase (HP). And you’d be absolutely right. Conditional sale and HP share similarities and work in almost the same way, though there’s one major difference.

When a HP agreement winds up, you’ll need to pay a modest “option to purchase” fee to assume legal ownership of the vehicle. In comparison, conditional sale sees you automatically assume ownership after the final payment is made.

How conditional sale works

Now we’ve covered what a conditional sale agreement is, here’s a step-by-step breakdown of how the process works:

Choose your make and model

Like other auto finance options, conditional sale starts with choosing your dream car. Whether it’s a fresh out the showroom model or a used gem with low mileage and a great service history, conditional sale offers the flexibility to choose a vehicle that suits your personal budget, lifestyle and driving preferences.

Agree on terms

When you’ve chosen your new set of wheels, it’s time to agree on the terms of your conditional sale contract. This includes the duration of the agreement, along with your interest rate.

Make your deposit

Most conditional sale agreements start with an initial deposit designed to offset the total cost of the car. Keep in mind that your deposit can also help bring down your monthly payments and reduce the total amount of interest paid over the duration of the agreement.

Pay monthly instalments

The remaining balance of your car loan, minus your initial deposit, is split into fixed monthly payments. These payments cover both the principal loan amount as well as interest. For many Brits, the sense of financial stability that comes with conditional sale contracts is a major benefit.

Claim ownership

Unlike some auto finance options where you may have to return the vehicle or make a balloon payment at the end of the contract, conditional sale is all about easy ownership. After the final payment is made, you’re officially the legal owner of the car.

Why choose conditional sale?

Knowing what a conditional sale is gives you a few clues as to why it’s so popular with British motorists. Here’s a closer look at some of the top benefits:

A road to ownership

Ownership is the end goal of conditional sale contracts. Your payments cover the cost of the car which means you’re continually working towards ownership. There are no mileage restrictions, hidden costs or headache-inducing calculations to navigate. Instead, simply make your final payment and drive away as the legal owner of the vehicle.

No balloon payments

For many motorists the concept of balloon payments used in models like PCP can be frustrating. In contrast, conditional sale distributes the total cost of the car evenly over a pre-determined time period. This can make budgeting more predictable and means you’ll enjoy full ownership at the end of the lease.

Mileage flexibility

Conditional sale liberates you from the mileage caps that typically accompany PCP agreements. You’re free to drive as much as you like without worrying about breaking the terms of your contract and incurring penalties.

Customisation options

With full ownership, you have the freedom to modify your vehicle as you please. Whether it’s a unique paint job, upgraded tech or personalised accessories, the car is yours to customise.

Take the wheel with My Car Credit

Ready to get behind the wheel? My Car Credit can help you secure the best conditional sale deals, tailored to your personal needs. Our friendly team is here to answer all your questions about what a conditional sale is, provide guidance and ensure your road to car ownership is as smooth and stress-free as possible.

Looking for something different? At My Car Credit we specialise in matching clients with the best auto finance options for their needs. Every motorist is different which is why a one-size-fits-all approach never cuts it. Instead, we carefully assess every application to find the perfect match.

As well as conditional sale, we offer other popular car finance options like Hire Purchase (HP), Personal Contract Purchase (PCP) and Personal Contract Hire (PCH). It’s this open-minded approach, combined with access to a wide range of high street and non-traditional lenders, that gives us a competitive edge over other brokers.

Give us a call on 01246 458 810 to find out more or email us at enquiries@mycarcredit.co.uk.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

What is a Balloon Payment on a Car Loan?

Will I Get Accepted for Car Finance?

Car Finance for First Time Drivers: A Beginner’s Guide

Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£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!

or call 01246 458 810

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What is Hire Purchase? – Simple HP Explanation

Someone reseacrching what Hire Purchase is on a phone

Whether you’re eyeing a brand-new Nissan Qashqai or a used Volkswagen Golf, hire purchase (HP) is one of the most popular auto financing options in the UK, up there with personal contract purchase (PCP). The model allows you to spread out the cost of car ownership over time and secure the keys to your dream car, without hefty upfront costs.

You’ve probably come across the term when researching automotive finance options. But what is hire purchase exactly, and how does it pave the way to affordable, stress-free car ownership? In this guide, we’ll unpack everything you need to know about hire purchase, breaking down all the moving parts so you can navigate the auto finance landscape with confidence.

Hire purchase explanation

Hire purchase is a finance option that combines the benefits of car ownership with the practicality, affordability and predictability of structured payments. It’s one of the simplest types of auto finance and spreads out the cost of the car, plus interest, over a set period of time, usually between one to five years.

Think of it as a well-planned road trip. You get to enjoy the ride but instead of absorbing the entire journey cost upfront, it’s broken down into manageable pit stops, i.e. monthly payments.

How HP agreements work:

Choose your car

This is the fun part and involves researching vehicles, scheduling test drives and choosing your dream car. It’s always a good idea to crunch your number before you start the search to get an idea of how far your budget will stretch and what types of vehicles you can realistically consider.

Make an initial down payment

Most HP agreements start with a down payment, though this isn’t always essential. That said, it’s generally in your best interest to make an initial deposit as it will help bring down your total loan balance and minimise your monthly payments, as well as interest costs. If you already own a car, trade ins can be a great way to raise cash for a deposit.

Monthly instalments

After making a deposit, the remaining cost of the car is spread out across fixed monthly instalments. These payments cover both the cost of the car and interest applied by the lender.

Ownership

Unlike personal contract hire (PCH) where you hand back the keys at the end of the agreement, hire purchase steers you towards full ownership. Once the final payment is made, the car becomes yours outright.

Hire purchase explained: a closer look at the benefits

Easy, affordable and predictable, it’s no wonder HP is one of the most popular auto finance options in the UK. Here’s a little more information to help explain what hire purchase is and why the model wins over so many Brits:

Budget-friendly beginnings

Thanks to affordable down payments, hire purchase allows you to kickstart your car ownership journey without depleting your savings. This sets you up for success on the road to car ownership.

Predictable payments

Monthly HP instalments are fixed which makes budgeting easy. No surprise expenses, just predictable monthly payments.

A road to ownership

One of the top benefits of hire purchase is the option to own at the end of the agreement. After your contract has expired, the car is yours to keep.

Flexibility

Whether you’re eyeing a zippy commuter, sleek convertible or family-friendly SUV, hire purchase offers loads of flexibility when it comes to makes and models. You’re free to choose a vehicle that best suits your budget, lifestyle and driving preferences.

New or used

Can you use hire purchase for a used car? Absolutely! As well as the flexibility to choose different makes and models, HP agreements offer the freedom to finance new or used vehicles. Auto finance isn’t just for showroom cars. Analysts estimate a huge 1.5 million used cars were financed by British motorists in 2023, with agreements worth £23 billion. The trend is set to continue in 2024 as Brits continue to use HP agreements to fund used car purchases.

Factors to consider when opting for Hire Purchase

Now you know more about what hire purchase is and how the model works, let’s take a closer look at some important factors to consider before committing to an agreement.

Understand interest rates

Like any financial agreement, it’s important to understand the interest rates applied to your hire purchase deal. Over time they will have a big impact on the total cost of your loan.

Evaluate your budget

While hire purchase makes car ownership accessible, it’s essential to carefully evaluate your budget before committing. Crunch your numbers to ensure your monthly instalments align with your financial situation.

Check for early repayment options

Some HP agreements allow for early repayment, an option that can potentially reduce the overall cost of your loan.

Factor in depreciation

All cars depreciate over time and vehicles financed using HP are no exception. Be sure to factor this into your decision making process if the value of the car at the end of your HP agreement is important.

Start your journey to ownership with My Car Credit

If ownership is your ultimate goal, hire purchase could be your ticket to ride. As covered in our hire purchase explained guide, the format is easy to understand and offers lots of flexibility when it comes to makes and models. Plus, you’ll enjoy the stability of structured payments which takes the stress out of budgeting.

At My Car Credit, we’re committed to helping Brits secure the best auto finance deals, including Hire Purchase agreements. Contact us today to find out more about how to qualify for HP finance and kickstart your journey to car ownership. Our friendly team is always happy to chat, answer questions and give you the full hire purchase explanation.

As well as hire purchase, we specialise in industry-leading deals on other car finance options, including popular models like personal contract purchase (PCP) and personal contract hire (PCH).

Give us a call on 01246 458 810 or email us at enquiries@mycarcredit.co.uk to find our more.

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Electric Car: Lease vs Buy – Which is Best?

Why Does Car Financing Take So Long?

I want to buy a car on finance, how much can I borrow?

Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£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!

or call 01246 458 810

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Car Finance Declined: 5 Possible Causes

There’s nothing more disheartening than dreaming of a brand-new car, only to have your finance application declined. Before you feel too deflated, remember that it’s not necessarily the end of the road. There are various reasons why car finance applications can be turned down and understanding them can help improve your chances of success next time.

In this article, we’ll explore five possible reasons you’ve been refused car finance – from credit history to each lender’s criteria – and offer some expert tips on how to turn the tables.

1. Poor credit history

One of the most common reasons people are refused car finance is a poor credit history. Lenders rely on your credit score to assess your trustworthiness as a borrower. Credit scores are generated by credit reference agencies, which provide a credit report for car finance lenders.

Firstly, it’s important not to continually make multiple applications when you’ve been refused car finance. That’s because each hard search with a credit agency leaves a visible mark on your credit file. These can stack up and affect your credit score over time because they typically indicate previous rejections.

A history of late or missed payments on utility bills and finance repayments can drag down your credit score and make lenders cautious about approving your application. Other reasons for a bad credit score include a lack of credit history, common for younger customers, county court judgements and not being on the electoral roll.

To improve your chances, consider building a better borrowing history before submitting your next application. Joining the electoral register is a simple step to take, but you can also avoid missed payments and ensure you pay other finance agreements and bills on time.

2. High debt-to-income ratio

Mainstream lenders not only look at your credit score but also your debt-to-income ratio. This number measures the percentage of your monthly income that goes towards paying off debt. Many lenders use this to get a better idea of your current personal circumstances, rather than simply basing their decision on a low credit score or good credit score.

If you’ve been declined car finance, it may be that you’ve reached your credit limit. In other words, any more monthly payments would put you into financial difficulty. A responsible lender won’t knowingly approve your car finance application with that in mind. To lend responsibly, they need to ensure applicants meet their own criteria for affordability.

Multiple existing loans like credit card balances, a mortgage or other financial commitments can negatively affect your ability to take on additional auto finance debt. Reducing your existing debts or increasing what you earn can help lower this ratio and make your application more appealing to lenders.

3. Unrealistic expectations

Lenders want to ensure you can comfortably manage your leasing or car finance payments. If your income doesn’t meet their affordability criteria, your application may be declined.

For example, it’s unlikely you’ll be approved for a £60,000 car loan on a £30,000 salary. Car finance deals make it easier to afford a better car compared to paying money up-front, but there are still limits to what you can afford in terms of repayments.

Before applying for car finance, assess your budget and factor in all monthly expenses to determine how much you can realistically afford. Yes, that brand new Audi SQ5 Sportback set to launch in 2024 is a dream. But if it doesn’t match your borrowing power there’s a high chance you’ll be refused car finance.

4. Lack of employment stability

Stable employment is one of the most important things lenders consider when assessing car finance applications. If you’ve recently changed jobs, have gaps in your employment history or work on a temporary or freelance (self-employed) basis, lenders may view it as a risk factor and you could be refused car finance as a result.

Self-employed people usually struggle with their employment status as it’s hard to guarantee how much you’ll earn. This can be very frustrating, especially if you earn a good amount through self-employment but simply don’t meet the lender’s criteria. In this instance, it’s well worth comparing deals with a few finance companies. There are also specialist lenders for self-employed people.

Having a consistent job and regular income can increase your chances of being approved for car finance. Checking your employment status is just another form of affordability – lenders think that you’re more likely to keep up with loan repayments if you have a steady amount of money coming in each month.

5. Applying with multiple lenders

Another reason you may be refused car finance is having too many applications on your credit file. There are a few reasons for this, but above all else, it’s another factor that leads to a bad credit score (also known as a bad credit rating).

When you apply for car finance, most mainstream lenders carry out a ‘hard’ credit check as part of the screening process. As we mentioned earlier, multiple hard searches in a short period can negatively affect your credit score and make lenders wary. If you’re refused for car finance by one lender and immediately apply with another, you may be seen as a high-risk borrower.

This is why it’s important to be strategic when it comes to car finance. Working with a broker like My Car Credit can help you establish your borrowing power before sending through an application. Instead of a hard search, we’ll take a ‘soft’ search that doesn’t leave a mark on your credit score. It’s good practice to check whether a lender will perform a hard or soft search to avoid unnecessary poor credit.

Tips to boost your application

Been refused car finance? Here are some expert tips to boost your chances and get your application over the finish line:

Choose the right lender

Different lenders have different approval criteria. Some specialise in car finance for poor credit and others focus on prime borrowers. Finding a lender that aligns with your credit profile will help reduce your chances of being declined car finance.

Save for a larger deposit

A larger upfront deposit can reduce the amount you need from finance agreements and make your application more attractive to a car finance company.

Secure a guarantor

If your credit history is a concern, asking a financially responsible guarantor to co-sign your car finance agreement can improve your approval chances.

Review your budget

Make sure your budget is realistic and that you can comfortably afford the monthly payments before applying for car finance.

Improve your credit score

A proactive approach to improving your credit file can open doors to better car finance options in the future.

Refused car finance? We’re here to help

We love a good challenge at My Car Credit, which is why we’re happy to work with applicants who have been declined in the past. Instead of giving up, we see rejections as an opportunity to assess your financial situation and address outstanding issues.

We’re not a standalone mainstream lender. Instead, we’re a car finance broker, helping people get car finance by working with a large panel of lenders. This makes it easier for for us to find suitable deals and get you approved for car finance, whether it’s hire purchase, personal contract purchase or leasing.

Give our free car finance calculator today!

Rates from 9.9% APR. Representative APR 10.9%

Evolution Funding Ltd T/A My Car Credit

Can You Pay Monthly for a Used Car?

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Loan amount

£

Repayment term

My credit rating

X monthly repayments of
^£X

Typical rate

Loan amount

Total payable

X% APR*

£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!

or call 01246 458 810

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Car finance has lots of confusing jargon – and a balloon payment is one example. Consider this article your ultimate guide to the what, why and how of balloon payments.

What is a balloon payment?

How does a balloon payment work?

Why choose car finance with a balloon payment?

What happens if I can’t afford my balloon payment?

Apply with balloon payment finance with My Car Credit

Rates from 9.9% APR. Representative APR 10.9%

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Require more help?

One of the many benefits of car finance is its flexibility. The range of car finance agreements means you’re guaranteed to find one that works for your unique needs and circumstances.

What is a balloon payment?

How do balloon payments work?

What are the benefits of car finance with a balloon payment?

Lower monthly payments

You get to own your vehicle

What are the drawbacks of car finance with a balloon payment?

Usage restrictions

Payment shock

Not ideal for those with lower credit ratings

What happens if you can’t afford your balloon payment?

Is a balloon payment right for me?

Wondering if you are eligible for My Car Credit car finance?

Rates from 9.9% APR. Representative APR 10.9%

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How do you know if a car finance agreement with a balloon payment is right for you? The first step is to understand the advantages and disadvantages of a balloon payment. Read on as we look at 4 advantages and 4 potential disadvantages.

What is a balloon payment?

Advantages of a balloon payment

1. Lower monthly repayments

2. Fixed cost

3. Potential for positive equity

4. You get to own your vehicle!

Disadvantages of a Balloon Payment

5. Usage Restrictions

6. Not Ideal for Those With Lower Credit Scores

7. Not Optional for Lease Agreements

8. Expensive Final Payment

How do I Refinance My Balloon Payment?

Rates from 9.9% APR. Representative APR 10.9%

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Love the charm and character of older cars but unsure about whether they’re eligible for finance? In this hands-on guide we’ll answer “what is the oldest car a bank will finance”. Our goal – to help you get behind the wheel of a car with its own unique story to tell.

The golden numbers

Exceptions to the rule

Defining a ‘classic’ car

Understanding classic car finance

Factors influencing classic car finance

Age of the vehicle

Condition

Rarity

Appraisal and valuation

Types of classic car financing

Hire Purchase (HP)

Personal Contract Purchase (PCP)

Personal Loans

Navigating your classic car finance journey

Research and due diligence

Consider specialty lenders

Insurance requirements

The bottom line on financing old cars

Secure the keys to a classic with My Car Credit

Rates from 9.9% APR. Representative APR 10.9%

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