Your Guide to Financing a New Car

Why This Guide Matters

Financing a new car is often the most practical route for many UK drivers, yet the process can feel labyrinthine. From unfamiliar jargon to the fine print of contracts, making sense of your options is key to avoiding costly missteps. With the right knowledge, you can negotiate with confidence, understand your commitments, and secure a deal that fits your circumstances. This guide provides clear, impartial information so you can approach motor finance with assurance, whether you’re buying your first car or upgrading your vehicle.

The Basics Explained

Car finance lets you spread the cost of a new vehicle over manageable monthly payments rather than paying in one lump sum. In the UK, the most common products are:

• Personal Contract Purchase (PCP): Pay an initial deposit and fixed monthly payments. At the end, choose to return the car, pay a final ‘balloon’ payment to keep it, or part-exchange for a new one.
• Hire Purchase (HP): Pay a deposit, followed by monthly payments. Ownership passes to you after the last payment.
• Personal Loan: Borrow from a bank or lender to buy the car outright, repaying the loan over time.

Key terms to understand include APR (Annual Percentage Rate), deposit requirements, mileage limits, and early settlement penalties. Each option has distinct implications for ownership, flexibility, and total cost.

How It Affects You

Choosing a finance option impacts not just your monthly budget, but your long-term financial flexibility. PCP and HP deals are secured against the vehicle, so missed payments could mean repossession. PCP is popular for those wanting to change cars frequently, but exceeding mileage limits or damaging the car can incur extra charges.

HP gives you certainty of ownership at the end, but monthly payments are usually higher than PCP. A personal loan often offers more flexibility—once you’ve bought the car, it’s yours to sell or modify as you wish. However, eligibility and interest rates depend on your credit score.

It’s crucial to compare the total amount payable across different finance products, not just the monthly instalments. Early repayment charges, optional extras, and insurance can all affect the real cost. Understanding these aspects helps prevent surprises and ensures your chosen finance method aligns with your needs and lifestyle.

Our Approach

At Kandoo, we believe in transparency and tailored advice. Acting as a retail finance broker, we work with a panel of reputable UK lenders to source competitive deals across all major car finance types. Our process is straightforward:

1. Assessment: We discuss your requirements, including vehicle preferences, deposit size, and budget. 2. Comparison: We compare offers from multiple lenders, ensuring you see a range of options with clear APRs and terms. 3. Guidance: Our advisors explain each product, highlighting key factors such as total cost, ownership implications, and potential fees. 4. Application: Once you’ve chosen a product, we handle the application and liaise with the lender for a smooth process.

We’re regulated by the Financial Conduct Authority, ensuring stringent standards of conduct and client protection. Our aim is to empower you: no jargon, no pressure, just clear explanations and support. We also provide resources to help you improve your credit profile and understand your rights under UK law. Our commitment is to help you make informed choices, not to steer you towards a particular lender or product.

Before You Decide

Before signing a finance agreement, reflect on your current and future circumstances. Ask yourself:
• Can I comfortably afford the monthly payments, even if my situation changes?
• Am I likely to exceed any mileage limits?
• Do I want to own the car at the end of the agreement?
• How will early settlement affect me if I decide to change cars or pay off the debt sooner?

It’s wise to check your credit score and review your budget. Read all terms and conditions, watching for hidden fees or restrictive clauses. If possible, seek independent advice, particularly if it’s your first finance deal. Remember, you have a legal cooling-off period for most finance contracts arranged at a distance or off-premises.

What’s Real, What’s Hype

Some dealers advertise car finance with ‘0% APR’ or ‘no deposit required’. While these offers can be genuine, they often come with conditions such as restricted vehicle models or higher total costs elsewhere in the deal. Similarly, pre-approval or ‘guaranteed acceptance’ finance may sound appealing, but eligibility always depends on credit checks and affordability assessments under UK regulations.

Ignore myths that you must use the dealer’s finance or that switching lenders will harm your credit; you have options, and multiple quotes affect your credit file only minimally when done within a short period.

Pros & Cons

Finance Option	Pros	Cons
PCP	Lower monthly payments, flexibility	Mileage/condition charges, no automatic ownership
HP	Simple structure, ownership at end	Higher monthly cost, less flexible
Personal Loan	Car is yours immediately, flexible use	Must qualify for loan, interest rates vary

Pros:
• Access to newer vehicles without upfront payment
• Spread costs over time
• Flexible end-of-term options (PCP)

Cons:

• Long-term cost can exceed purchase price
• Risk of repossession for missed payments
• Early termination or excess mileage fees

Other Options to Consider

Car finance isn’t the only route to a new vehicle. Other alternatives include:
• Leasing (PCH): Pay fixed monthly rentals to use a car for a set period, then return it. No option to buy, but often lower monthly payments.
• Salary sacrifice schemes: Some employers offer car schemes that let you pay for a new car (including EVs) through your salary before tax, potentially saving money.
• Buying outright: If you have savings, purchasing the car outright avoids interest charges and finance commitments.

Each option has unique implications for tax, insurance, and flexibility. Leasing, for instance, is ideal for those who like to drive a new car every few years, but you’ll never own the vehicle. Salary sacrifice can be tax-efficient, especially for electric cars, but is tied to your employment. Always calculate the total cost and consider your long-term plans before choosing.

FAQs

Q: Is a credit check always required for car finance?

A: Yes, all regulated lenders will conduct a credit check to assess your eligibility and affordability.

Q: Can I settle my finance early?

A: Most agreements allow early settlement, but you may face charges. Check your contract for details.

Q: What happens if I miss a payment?

A: Missing payments can lead to late fees, negative credit impact, or repossession. Contact your lender immediately if you’re struggling.

Q: Does car finance affect my credit score?

A: Yes, both positively (with on-time payments) and negatively (with missed payments or excessive applications).

Q: Can I finance a used car?

A: Absolutely. PCP and HP are available for new and used vehicles, though terms may differ.

Q: Are there age or mileage restrictions on financed cars?

A: Typically, yes. Lenders may set maximum age or mileage limits for vehicles at the start or end of the agreement.

Q: What protection do I have as a consumer?

A: UK law provides robust consumer protection, including the right to clear information, cooling-off periods, and ombudsman services for disputes.

Q: How do I get the best deal?

A: Compare offers, check the total payable, and negotiate on rates and extras. An independent broker can help you access a wider range of deals.

Next Steps / Call to Action

Financing a new car can be straightforward with the right guidance. Compare your options, ask questions, and never rush into a commitment. For expert advice tailored to your needs, contact Kandoo’s team of FCA-regulated advisors today. We’re here to ensure your next car finance deal is as clear and cost-effective as possible.