Financing

Personal Contract Purchase (PCP): Lower monthly payments, balloon payment at end, option to return car, but mileage limits and no ownership until final payment. Hire Purchase (HP): Fixed monthly payments, own car at end, no mileage limits, but higher monthly costs. Personal Loan: Own car immediately, no mileage restrictions, can sell anytime, but higher monthly payments and need good credit. PCP suits those who change cars every 3-4 years, HP suits those wanting eventual ownership, loans suit those who keep cars long-term.

APR (Annual Percentage Rate) is the total cost of borrowing including interest and fees. A 9.9% APR on £10,000 over 3 years costs £1,566 in interest (£322/month). At 5.9% APR, you'd pay £948 interest (£304/month), saving £618. Even 2-3% APR difference saves hundreds over the term. Dealers often advertise low "from 4.9%" rates but only those with excellent credit (750+ score) qualify. Most buyers get 8-12% APR. Always get pre-approved from your bank to compare against dealer finance.

Yes, pre-approval is highly recommended. Benefits: know your exact budget, negotiate as a "cash buyer" with dealer, compare dealer finance against pre-approved rate, avoid pressure to accept poor dealer finance, and speed up the purchase process. Get pre-approval from your bank, building society, or online lenders. They'll run a soft credit check and provide a rate valid for 30-60 days. If dealer beats your pre-approved rate, you can switch, but never tell dealers you're pre-approved until after negotiating the car price.

Yes, but expect higher interest rates (15-29% APR vs 5-9% for good credit). Options include: specialist bad credit lenders, guarantor loans (someone with good credit co-signs), or larger deposits (30-50% reduces lender risk and may improve rates). Avoid buy-here-pay-here dealers who finance their own cars at 25-40% APR. Instead, improve your credit score first: pay bills on time for 6 months, register on electoral roll, close unused credit accounts, then apply through comparison sites like TotallyMoney or MoneySuperMarket.

Aim for 10-20% deposit minimum. Larger deposits mean: lower monthly payments, less interest paid overall, better approval odds with bad credit, and more negotiation power with dealers. For a £12,000 car: 10% deposit (£1,200) = £300/month over 3 years at 9.9% APR. 20% deposit (£2,400) = £268/month, saving £1,152 total. Avoid zero-deposit finance - you'll be in negative equity (owe more than car is worth) for years, making it impossible to sell or refinance.

Bank loans are often better for used cars because: you own the car immediately (can sell anytime), no mileage restrictions, typically lower APR (5-9% vs 8-15% dealer finance), and simpler terms. Dealer finance suits new cars where manufacturers subsidize rates (0-3.9% APR) or if you have poor credit and need a guarantor. Always get both quotes: negotiate car price as cash buyer, then compare dealer finance offer against your pre-approved bank loan. Choose whichever has lowest APR and total cost.

You can settle early but expect: early settlement fee (usually 1-2 months interest), need to pay off remaining balance plus interest, and potential negative equity if car value dropped faster than loan balance. For HP/loans: you can sell car, use proceeds to settle finance, and keep any surplus. For PCP: you're locked in unless you pay the full settlement (all remaining payments + balloon payment). Voluntary termination is available once you've paid 50% of total amount, but you must return the car with no ownership.

Financial advisors recommend total car costs (payment, insurance, fuel, tax, maintenance) should not exceed 15-20% of monthly take-home income. For £2,000 monthly income, that's £300-400 total. If insurance is £80/month and fuel is £120/month, your payment should be max £100-200/month. Use the 20/4/10 rule: 20% deposit, no more than 4 year term, and total monthly car costs under 10% of gross income. Don't let dealers "payment pack" you into longer terms to hit your target payment.