The pros and cons of car finance

Getting a car on finance is a big decision, and like any type of borrowing, it comes with advantages and disadvantages. Ensure you weigh up the pros and cons below before deciding if it’s right for you.

6 min read
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The main advantages of getting your car on finance  

1. You can get a better car 

With car finance, it’s generally easier to purchase newer and more expensive cars that may be out of reach when buying outright. Newer cars are generally more reliable, so if you want to minimise the risk of things going wrong or repairs being needed, car finance can be a good way to go. 

If you’re someone who likes to upgrade their car regularly, car finance is ideal. With PCP (personal contact hire), you have the option to hand the car back and get a new one (on a new agreement) every few years.  

2. Make a positive impact on your credit rating 

Car finance is a type of credit, so it counts towards your credit score. Providing you make your payments on time, every month – having car finance can improve your credit score. It shows over time that you’re a reliable borrower. 

However, the opposite is also true. If you struggle to make your repayments or pay late, this can have a negative impact on your credit rating. 

3. Flexibility of finance type – deals to suit all circumstances 

There are several different types of car finance, so you can generally find one to suit your circumstances. Most common types include: 

  • Hire Purchase – you pay a deposit, pay monthly repayments and then by the end of the agreement, you own the car
  • PCP – you pay a deposit, pay monthly repayments and then have the option to buy the car at the end of the term. If you choose not to, you can return the vehicle. This is often cheaper than Hire Purchase
  • Personal loan- you borrow a set amount, pay monthly repayments to pay off the loan. With this option you own the car outright from the beginning and the loan you’ve taken out is unsecured  

You can also find car finance deals that don’t require a deposit, offers for car finance with bad credit and even options where you don’t borrow at all – PCH (like personal contract hire) – so it’s like a long-term rental. 

4. Spread the cost and no lump sum needed 

Unlike buying a car outright, you don’t necessarily need any cash upfront to arrange car finance. There are plenty of brokers and lenders who will offer your car finance with no deposit needed (like us!). So, you can get a new car even if you’re short on immediate funds or your budget is tight. It’s also a way of spreading the cost of an expensive, life-enhancing item. 

Bear in mind that some dealerships and lenders do require a deposit as part of their agreement, so check before you proceed.  

5. Flexibility of cost 

Car finance costs vary hugely, and you’ll generally find something to suit every monthly budget.

Sometimes when people think of car finance, they imagine payments of several hundred a month, but this isn’t always the case.  

It depends on the value of the vehicle, length of the agreement and the deposit size you have (if any). Most brokers, lenders and dealers will be happy to find a vehicle for any budget, so use a car finance calculator to see how much you can borrow with your monthly repayment budget. 

Things to consider when applying for car finance 

1. Paying more over time 

When you get a car on finance, you end up paying more for it over time. Like any loan, the money you borrow has interest added to it.  

This means you’ll always pay more than if you were to buy a vehicle outright, in one payment. Therefore, if you can afford to, it’s always worth considering that before jumping straight to finance options.  

2. Keeping track of mileage 

With many agreements, you must stay below a certain mileage per year. This tends to be for PCP arrangements, where there is the chance you won’t keep the car. A car’s mileage and age are what contribute towards it’s decrease in value, so it's a protective measure from the lender or dealership. It would also be the case with PCH agreements, as you never own the car. 

Many insurance policies also have a mileage requirement, so it’s a good idea to line these up, especially if it can save you money on insurance. 

3. Consider wear and tear 

If you’re on an agreement where you might not own the car at the end, you should also consider wear and tear. You could be liable for any damage costs if this is the case. 

Therefore, if you know there’s a chance of this happening (for example, if you have kids or pets), then you might want to factor this into your decision making. 

It’s also worth noting that you won’t be able to make any modifications to the car if it’s on finance. 

4. Ongoing cost 

An obvious one, but car finance incurs an ongoing cost. If you buy a car outright, you’re done – and only have to think about other car running costs month to month.  

If you have car finance, it can be easy to continue and keep getting new models once agreements end. Just consider whether you want to add this cost to your monthly priority bills, you might want to take into account other commitments you already have.

While car finance can help your credit score, if not handled responsibly it can also contribute towards decreasing your score. 

As with any type of credit, if you don’t keep up with the repayments, this will be logged on your credit file. Make sure you’re 100% happy that you can cover the monthly cost moving forward, before you sign an agreement.

Is car finance right for you?

This depends entirely on your personal circumstances. If you use the pros and cons above to determine this, you should be able to decide if car finance is the best way forward for you. 

Ask yourself the following before going ahead: 

  • are you unable to afford the type of car you want outright?
  • are you confident you can make the repayments on time, each month?
  • have you done your research to find the right type of car finance for you?

If you’re confident you can make the repayments and you want access to a newer, more reliable car, then car finance could be a good option. 

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*Representative example: Borrowing £6,500 over 5 years with a representative APR of 19.9%, an annual interest rate of 19.9% (Fixed) and a deposit of £0.00, the amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount payable of £9,964.37. Rates may differ as they are dependent on individual circumstances. Subject to status. We're a credit broker, not a lender.