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Representative Example: You could borrow £10,699 over 60 months with an initial payment of £495.89 (including £199 Admin Fee) followed by 58 monthly payments of £296.89 with a final payment of £495.89 (including optional £199 Option to Purchase Fee). Total amount repayable will be £19,012,40. 26.1% APR, annual interest rate (fixed) 13.3%.

First time financing a car? Here’s everything you need to know

 

If it’s your first time financing a car, it can feel a bit overwhelming, but it doesn’t need to be. Car finance allows you to spread the cost of a car over time with monthly payments, rather than paying for it all upfront. This guide will walk you through how car finance works, what to expect, and how to get started with confidence.

What is car finance and how does it work?

Car finance is a way to borrow money so you can buy a car without paying the full price upfront. Instead, you make fixed monthly payments under a loan agreement. Once the payments are complete, you may own the car or return it, depending on the type of finance you choose.

Two of the most common options are:

  • Hire Purchase (HP): You hire the vehicle over an agreed term and make fixed monthly payments. At the end of the agreement, you have the option to purchase the car by paying the final monthly instalment along with a small option to purchase fee. Once these are paid, the car becomes yours.
  • Personal Contract Purchase (PCP): You pay a deposit and monthly payments, but you don’t automatically own the car at the end. You can choose to pay a final amount (a balloon payment) to keep it, return it, or use any equity as a deposit on another car. There are usually mileage limits.

If you’re unsure which option is best, you can read our guide on HP versus PCP car finance.

Handing Keys To Happy Woman Red Car

What are the best ways to finance your first car?

If this is your first time financing a car, it’s important to understand the different ways you can get a car and spread the cost. Some options let you hire the vehicle over a fixed term with the choice to buy it at the end, while others involve borrowing money upfront or saving to buy the car outright. Each option works differently, so it’s worth exploring what suits your budget and your plans for the car.

  • HP and PCP agreements are popular with used car finance because they offer fixed payments and flexible terms.
  • Personal loans can also be used to finance a car. You borrow the money directly from a lender and pay the seller in full, meaning you own the car from day one.
  • Saving up is another option. If you’re not in a rush, buying a car outright with savings means no monthly payments and no interest.

Each option has pros and cons. Think about what works best for your personal circumstances, how long you want to keep the car, and whether you’d prefer to own the vehicle or have the option to change it later on.

What do I need to apply for car finance?

To apply for car finance, you’ll need to provide some personal and financial information to help the lender decide if you can afford the repayments. Here’s what you’ll typically need:

  • Proof of identity: A valid driver’s licence or passport.
  • Proof of address: Recent utility bills or tenancy agreements.
  • Proof of income: Recent payslips or bank statements.
  • Employment details: Your job title, employer name, and how long you’ve worked there.
  • Address history: Your current and previous addresses covering the last three years.

Make sure all the information is accurate and up to date. Mistakes or missing details can slow down your application or lead to your finance application being declined.

What credit score do I need to finance a car?

Your credit score plays a big part in whether you’ll be accepted for car finance. Lenders use it to see how well you’ve managed credit in the past. A higher score often means better finance offers with lower interest rates.

Even if you have a low score, or no credit history at all, there are lenders who specialise in car finance with bad credit. If you’ve been turned down before, don’t panic, you can read our guide on what to do if you’ve been refused car finance.

Credit scores vary by agency, but generally the higher the score, the better your chances of getting approved. For example, Experian rates 881+ as good, Equifax 531+ as good, and TransUnion 604+ as good.

Happy Car Woman

What does APR mean when financing a car?

If your application is approved, the lender will contact you to confirm the next steps. You may be asked to upload documents or agree to a credit check if you haven’t already.

Before signing anything, carefully review your finance terms. Look for things like:

  • Early settlement fees
  • Total amount payable
  • Repayment period
  • Mileage limits (if PCP or PCH)
  • Requirements of the agreement
  • Your rights under the agreement
  • The amount of commission being paid to the dealer or broker

Once everything is confirmed, the lender will pay the dealer directly, and you can collect your new car. Make sure you get a copy of your agreement and keep it somewhere safe.

What can I do if I’ve been refused car finance?

If you’ve been declined, don’t give up. It doesn’t always mean you can’t get finance, it may just mean now isn’t the right time, or that your application needs adjusting.

Here’s what you can do:

  • Check for errors: Make sure your information is correct and update anything that’s changed.
  • Improve your credit: Make regular payments on time to improve your credit file.
  • Consider a different lender: Some lenders offer used car finance even if your credit history isn’t perfect.
  • Wait and reapply later: Give yourself time to improve your financial situation or save a larger deposit. Most providers suggest waiting 3 months before applying again.

At AutoMoney Motor Finance, we welcome first-time applicants and those who’ve been declined elsewhere. We take your full financial circumstances into account and may still be able to help you get into your new car.

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