How to apply for car finance

Applying for car finance can be daunting and complicated. Our guide cuts through the jargon and debunks the myths...

Man looking at computer

Most new cars are bought on finance, but the application is one of the most misunderstood and confusing parts of the buying process.

It needn’t be, though. Once you understand a few basic things about the process, the exact costs and your eligibility, you can apply for car finance safe in the knowledge that you know precisely what you’re getting. Here’s what you need to know.

Consider your circumstances

The idea of buying a car on finance – or leasing one – is that it’s easier to handle fixed, monthly payments than to cobble together thousands of pounds for a one-off payment. However, before you sign up, you need to be confident that you can afford the repayments for the length of the contract.

If you’re certain this won’t be an issue, then you can start the application process, but if, for example, you’re planning to leave your job or start a family, then a reduction in income will obviously make the monthly repayments more difficult to handle, so signing up to finance of any sort could be problematic.  

You should also consider your eligibility for car finance. Even if you can afford the monthly payments, a poor credit history could affect your chances of getting the best deals – or any deal at all. You can get a free credit report from Experian, Equifax or Callcredit, which will explain your credit history in detail and highlight any problems.  

Should I buy a car with a credit card?

Look at the different types of finance

There are numerous different ways of financing your car and they’re all slightly different, so it’s important to work out which will suit you best.

Personal contract purchase (PCP) and hire purchase (HP) are two of the most popular ways of buying a new car, while personal contract hire (PCH) or leasing is a cheaper – and also popular – alternative, which effectively allows you to rent the car over a longer period. Personal loans and dealer finance are also common.

Each method has its own rules and distinctions from the others, so it’s important to understand exactly what you’re getting. Our guide to car finance explains the six most common forms in detail.

Shop around for the best deal

Don’t think you have to take the first deal you’re offered on car finance. The number of different lenders and types of funding means there are other options if the price you’re offered seems too high, so it makes sense to investigate.

What Car? New Car Buying can help you find the best available deals on new cars at any particular time. Our Target Price is what we think you should pay, according to research by our team of mystery shoppers and the discounts they dig up.

Bear in mind that, while shopping around for deals is a great idea, you should keep the number of actual applications for car finance to a minimum – ie submitting a formal application to a lender. This is also known as a ‘hard’ application and appears on your credit history. A lot of these in quick succession can have a negative effect on your credit history, so it’s best to find the deal you want, then put in a serious application when you’re happy with it.

Should I buy a car with a credit card?

Understand the exact costs

The whole point of buying a car on finance is that it breaks down the costs and makes them easier to swallow, so the last thing you want is to be hit with hidden expenses.

It’s therefore important to look beyond the headline monthly payment figure and get your head around all of the costs associated with the contract, such as the deposit, excess mileage fees, end-of-contract damage charges or any final payments, often known as balloon fees, which allow you to become the owner of the car.

Lenders and brokers are legally required to provide you with a clear and accurate breakdown of the costs of any finance contract before you sign up, so make sure you have this and that you’ve read the small print.

If in doubt, just ask

Car finance can seem complicated, so if something crops up that you don’t understand, there’s absolutely no shame in asking questions.

Good dealers and lenders will do their best to explain everything and you should never feel hurried or pressured to sign up. If that happens, either walk away or refuse to sign anything until you’ve had sufficient time and asked enough questions to make sure you completely understand everything.

What Car?’s team of experts is also on hand to explain, advise and assist with the trickier aspects of car finance. You can get in touch by emailing

Next: Can I hand my car back if I can no longer afford the finance payments? >

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