Car finance options

Car finance explained

If you’ve never secured finance to buy a car before, then it can seem a little confusing. We’ve collected together some of the most frequently asked car finance questions below, to help explain to you how it all works.

How does car finance work?

Car finance works by spreading the total cost of a car across a series of manageable monthly payments. This is normally between 24-48 months, depending on your monthly budget for repayments, the total amount you want to borrow, and how long you want the package to last.

In essence, the finance provider will lend you the car while you make the repayments. Once the final repayment has been made, ownership will transfer to you. So you can still get the full benefits of owning a car without having to pay for it all upfront.

The finance provider makes money from the finance package by charging you interest on the amount you borrow. The interest rates will be based on a number of factors, especially your credit rating. You will be informed of the interest rate at the start of the agreement.

If it’s a fixed interest rate, then you will also be able to view the total amount you will be charged, meaning the package will be divided into fixed monthly payments. If it’s a variable interest rate, often referred to as an APR (annual percentage rate), then you will be given an idea of how much you will be charged but this can change across the agreement. So your monthly payments will vary depending on the interest rate. Find out more about annual percentage rates .

How easy is it to get car finance?

Creditplus have worked hard to make finding finance for your car as simple and transparent as possible.

To apply, you will need the following:

- A full UK driving licence

- 3 years address history

- 3 years employment history

When you apply, we will conduct a soft search on your credit report. This allows us to see what options you have available and present them to you.

It’s a good idea to use our car finance calculator in advance of applying to see what sort of package you will be eligible for. But applying with us is no-obligation, so you can get your free quote tailored to you.

As an FCA regulated provider, we follow strict guidelines on how we treat our customers and the way we present information. You can read our Google Reviews to see just why we are a 5-star rated recommended car finance provider by hundreds of customers a year.

What types of car finance are available?

There are several different types of car finance available to Creditplus customers. Each work in different ways, meaning there’s bound to be a finance option suitable for you. The main types available are:

Personal Contract Purchase (PCP): One of the most popular options to finance your car on the market, Personal Contract Purchase works by calculating how much value a car loses over the length of a finance agreement. You then pay off this depreciation in value. At the end of the agreement, you have three options: return the car to the dealer, pay a one-off final payment and exercise your option to buy the car, or part exchange the vehicle against a new finance agreement. PCP is generally only available to those with good or excellent credit ratings.

Hire Purchase (HP): If you know you want to own the car at the end of the agreement, then Hire Purchase is a good option for you. It works by calculating the total cost of the finance package at the start of the agreement, as this product uses a fixed interest rate. You then divide the entire cost of the car and interest across the agreement into fixed monthly payments.

Lease Purchase (LP): Deferring part of the cost of the vehicle to the end of the agreement, lease purchase allows you to reduce the cost of your monthly repayments before paying a final balloon payment to purchase the car. You can often refinance this balloon payment.

Car Leasing: Working like you are renting the vehicle, car leasing allows you to effectively borrow the car across the length of the finance agreement. Ideal for those who want to change cars every few years or so.

Guarantor Loans: If you want to finance a vehicle but want help securing the loan, a guarantor loan works by having a friend or family member effectively offer a guarantee that you will be able to make the repayments on the vehicle. Unlike a personal loan, this will be secured against the car.

Bad Credit Car Finance: if you are suffering from adverse credit or are in the process of repairing your finances, then you can still find finance for your car. It may be that you do not qualify for PCP finance but you should qualify for a hire purchase package. We work with a range of specialist lenders who may be able to help.

What credit score do you need to finance a car?

Creditplus work with a wide panel of different finance providers who will finance cars for people from all sorts of financial backgrounds. So even if you have a bad credit rating, we may be able to help find a package for you. If you have bad credit, then the interest rates will be higher than if you have an excellent credit rating. But there are ways to offset that through the type of car finance option you choose and the amount of deposit you have available. Speak to one of our advisors to find out how we can help provide bad credit car finance for you.

Is it better to lease or buy a vehicle?

Whether you want to buy or lease a vehicle will depend on your personal circumstances, but there are many benefits to choosing finance to buy your next car.

Breaking down the cost into manageable monthly payments means you may be able to get a better car than what you could afford with just your savings. So you can get a newer, safer, more fuel efficient car that will save you money in the long term. A Hire Purchase (HP) deal spreads the entire cost of the finance package across your agreement, including the amount charged in interest.

Some car finance options, like personal contract purchase (PCP finance) and lease purchase (LP finance), give you the option to buy the car you lease at the end of the agreement. So if you do fall in love with the car you’re financing, then you can choose to pay a final payment to own the car.

But the big advantage of car leasing is that you can change the car ever few years when one car finance agreement comes to an end. Allowing you to take advantage of newer, better models every few years. Paying interest on a car may be worth it if driving the latest models appeals to you.

Does car finance affect your credit score?

All types of finance can affect your credit score, from credit cards to personal loans. But if you maintain your monthly payments and don’t miss any, then taking out a car finance package can help improve your credit score.

Taking out finance and meeting all your monthly repayments shows a finance provider that you can be trusted. All finance, including car finance, is based on how big a risk a customer is to the lender. If you pay off your agreement with no problems, then you are demonstrating you are less of a risk. This will increase your credit score.

Conversely, if you miss any repayments or have difficulties, then this can negatively affect your credit rating. If you are struggling to make repayments, you should always contact your customer advisor here at Creditplus. We will do all we can to help you.

Applying for finance to buy a car with Creditplus does not affect your credit score. When you apply with some providers, this application is recorded on your credit report. If you apply at many providers in a short period of time, then these multiple applications can raise a red flag with a provider. This can negatively affect your credit score. But your application with Creditplus does not affect your credit rating. Find out more about soft credit searches.

What type of car can I finance?

Here at Creditplus, we help customers finance cars of all types. From Fiats to Ferraris, new cars and used cars, you can choose a vehicle from any UK dealer and we will carry out all the checks to ensure that the car and dealer are genuine. Whether you’ve found the ideal car or need a little help finding or choosing, our expert team of trusted car finance advisors are waiting to help.

But we don’t just finance cars. We can also provide vehicle finance for vans and commercial vehicles, motorbikes, motorhomes and campervans. We can even help you finance your dream classic car. Apply online today and speak with your customer advisor for help and advice.

Looking for a great car finance deal?

Apply online today and one of our team will be in touch to talk you through all the options you have to buy a car on finance. Whether you want a hire purchase or PCP finance deal, we will compare over 90 lending options to find the best car finance deal for you. So you can focus on the fun part - choosing your ideal new car.