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Types of car finance

Search our different types of car finance and receive free quotes from great finance lenders today!

Guarantor Finance Paperwork

A guarantor loan is a type of unsecured loan that requires a second person, known as a guarantor, to co-sign the credit agreement. This guarantor promises to repay the loan if the borrower defaults or is unable to meet the repayments. Guarantor loans are ideal for individuals who:

Have a poor or limited credit history: If you’re unable to secure a loan due to your credit situation, having a guarantor can increase your chances of approval.

Have a trustworthy person willing to act as a guarantor: This is typically a family member or close friend with a good credit history who understands the risks involved.

Are confident in their ability to make repayments: As the guarantor will be liable if they can’t.

Pros of guarantor loans

👍 Higher acceptance rates: Guarantor loans can be easier to get approved for, especially if you have poor or no credit history.

👍 Potentially lower interest rates: Depending on the creditworthiness of your guarantor, you might secure a loan with a lower interest rate compared to other bad credit loans.

👍 Can improve credit score: If you make your repayments on time, a guarantor loan can help improve your credit score.

Cons of guarantor loans

👎 Risk to the guarantor: If you fail to make the repayments, the guarantor is legally obliged to do so. This can strain relationships and put the guarantor under financial pressure.

👎 Potentially high interest rates: Despite the guarantor, these loans can still come with high interest rates compared to mainstream loans due to the perceived risk.

👎 Not instant: The process can take longer as the lender needs to assess both you and your guarantor’s creditworthiness.

How do guarantor loans work?

In a guarantor loan, you (the borrower) apply for a loan with a lending institution. In addition to your own financial information, you also provide the information of a guarantor. This is typically a friend or family member with a good credit score who agrees to take on the responsibility of the loan should you fail to make repayments. The lender will evaluate both you and your guarantor’s creditworthiness. If approved, you receive the loan and are responsible for making monthly payments. If for some reason you can’t make the payments, the guarantor is then legally responsible for the

HP, or hire purchase, is a type of car finance where you hire the car from a finance company until you make the final payment. After the last payment, the ownership of the car is transferred to you.

Hire purchase car finance is ideal for those who want to own the car outright at the end of the finance agreement, can afford consistent monthly payments, and may not have the funds to pay for the car upfront.

Pros of HP car finance

👍 It allows you to spread the cost of a car over a period of time, making it more affordable on a month-by-month basis.

👍 The interest rates are typically fixed, so the monthly payments stay the same throughout the agreement.

👍 Once the final payment is made, you become the outright owner of the car.

Cons of HP car finance

👎 Until the final payment is made, the finance company owns the car, which means they may have the right to repossess the car if you miss payments.

👎 The total amount paid can be higher than the original value of the car due to interest charges.

👎 It could be more expensive than other finance options if you don’t have a deposit to reduce the loan amount.

How does HP car finance work?

In a hire purchase agreement, you pay an initial deposit, usually a percentage of the car’s total price. Then, the remaining cost of the car, along with any interest, is split into monthly payments over a set period. During this time, you’re hiring the car from the finance company. Once you’ve made all the payments, you will own the car outright.

For example…

Details Example figure
Car value
£12,000
Deposit
£1,000
Remaining amount
£11,000
APR
25.4%
Term length
48 months
Total amount repayable
£16,879.42
Monthly repayment
£351.65
Will you own the car after?
✅ Yes

The example figures above are provided for illustrative purposes only and actual repayment amounts may vary. To find out actual repayment amounts from great lenders, search for quotes here.

No deposit car finance is a type of financing where the borrower doesn’t need to provide an initial payment or deposit to secure the loan. Instead, the entire amount is financed, allowing the borrower to acquire the car, without having to save for a down payment. No deposit loans are ideal for individuals who:

Have a stable income and can afford the higher monthly payments. Don’t have the funds saved for a down payment. Need a car or other high-value item immediately and can’t wait to save for a deposit.

Pros of no deposit loans

👍 No upfront payment: You don’t need to save for an initial deposit, which can make it easier to get the item you need more quickly.

👍Fast access: No deposit loans can provide faster access to the financed item, especially if you don’t have the funds for a down payment.

👍 Opportunity for those with limited savings: For those who have trouble saving for a deposit, this type of loan can make certain purchases possible.

Cons of no deposit loans

👎 Higher monthly payments: Since the entire cost of the item is financed, the monthly payments will be higher compared to loans with a deposit.

👎 Higher total cost: With no deposit to lower the loan amount, you may end up paying more in interest over the loan term.

👎 Lower likelihood of approval: Lenders may see no deposit loans as riskier, which can make it harder for some borrowers to get approved, especially those with poor credit.

How do no deposit loans work?

In a no deposit loan, the borrower applies for a loan without providing an initial deposit. The lender assesses the borrower’s creditworthiness, and if approved, grants the loan for the full amount of the item being financed. The borrower then makes monthly payments over the loan term, which will be higher than if a deposit had been made. At the end of the term, the borrower has paid off the entire loan, including interest.

For example…

Details Example figure
Car value
£12,000
Loan amount
£12,000
APR
18.2%
Term length
48 months
Total amount repayable
£16,572.22
Monthly repayment
£345.23
Will you own the car after?
✅ Yes

The example figures above are provided for illustrative purposes only and actual repayment amounts may vary. To find out actual repayment amounts from great lenders, search for quotes here.

PAYG, or Pay As You Go, car finance is a type of loan where the vehicle is fitted with a device that allows the finance company to disable it if payments aren’t made on time. After each successful payment, the driver is given a code to keep the car operational until the next payment is due. PAYG car finance is ideal for individuals who:

Have a poor credit history: These types of loans often have fewer credit requirements.

Need a strong incentive to make payments on time: The risk of the car being disabled can encourage timely payments.

Are looking for a way to rebuild their credit: Regular, on-time payments can improve credit score over time.

Pros of PAYG car finance

👍 Easier approval: PAYG finance can be a good option for those with poor credit who might struggle to get approved for traditional car loans.

👍 Encourages timely payments: The immediate consequence of missed payments can incentivize regular, on-time payments.

👍 Can help rebuild credit: If managed properly, PAYG finance can help improve a poor credit score.

Cons of PAYG car finance

👎 Risk of immobilisation: If you miss a payment, your vehicle could be disabled, which could impact your daily life, especially if you rely on your car for work or other important activities.

👎 Privacy concerns: Some people may not be comfortable with the level of oversight involved in PAYG car finance.

👎 Typically higher interest rates: Because these loans are often aimed at those with poor credit, the interest rates can be higher compared to other types of car finance.

How does PAYG car finance work?

With PAYG car finance, when you take out the loan, the finance company installs a small device in the car which is linked to the payment system. Each time a payment is made on time, a code is provided that keeps the car operational until the next payment is due. If a payment is missed or late, the car can be remotely disabled until the payment is made, at which point the car can be started and used again. The loan is paid back in monthly instalments over a set term until the total amount is repaid.

PCP, or Personal Contract Purchase, is a type of car finance where you pay a deposit, followed by lower monthly instalments over a set period of time. At the end of the contract, you can choose to return the car, make a final ‘balloon’ payment to own it outright, or use any equity towards a new car. PCP car finance is ideal for individuals who:

Want lower monthly payments: The monthly payments on a PCP agreement are usually lower than other finance methods as you’re not paying off the full value of the car.

Like to change cars frequently: PCP can be a good option if you enjoy driving newer models and plan to change cars every few years.

Want flexibility at the end of the agreement: With PCP, you have the option to return the car, buy it, or trade it in at the end of the contract.

Pros of PCP car finance

👍 Lower monthly payments: Because you’re not paying for the car’s total value, your monthly instalments are usually lower than with other types of finance.

👍 Flexibility: At the end of the contract, you can choose to return the car, pay the final balloon payment to own it, or trade it in for a new model.

👍 Access to newer models: PCP can make it more affordable to drive a newer, higher-spec car.

Cons of PCP car finance

👎 You don’t own the car during the agreement: The finance company owns the car until you make the final balloon payment.

👎 Mileage restrictions: PCP agreements usually come with a mileage limit, and you may have to pay extra if you exceed this.

👎 Could be expensive if you choose to buy: If you decide to make the balloon payment to own the car at the end of the contract, it can be quite expensive.

How does PCP car finance work?

In a PCP agreement, you first pay a deposit, usually around 10% of the car’s value. Then you make lower monthly payments over a set period (typically 2-4 years). These payments are based on the depreciation of the car, rather than its full value. At the end of the term, you have three options: return the car with nothing more to pay (assuming it’s in good condition and within the agreed mileage), make the final balloon payment (the Guaranteed Future Value) to own the car, or trade in the car and use any equity as a deposit on a new PCP deal.

For example…

Details Example figure
Car value
£12,000
Deposit
£1,000
Remaining amount
£11,000
APR
8.4%
Term length
48 months
Mileage limit agreed
10,000 per year
Total amount repayable
£13,506
Monthly repayment
£196
Optional balloon payment
£4,294

The example figures above are provided for illustrative purposes only and actual repayment amounts may vary. To find out actual repayment amounts from great lenders, search for quotes here.

A personal car loan is a type of unsecured loan that you take out with a bank, credit union, or other financial institution to purchase a car. The loan is repaid over a set term with monthly payments that include both the principal and interest. A personal car loan is ideal for individuals who:

Have a good credit history: These loans often require a higher credit score for approval.

Want to own the car outright from the start: Unlike some other finance options, you’ll own the car outright as soon as you purchase it.

Prefer a straightforward loan structure: Personal loans usually offer fixed rates and set monthly payments, which can be easier to manage.

Pros of personal loans

👍 Full ownership: You become the owner of the car immediately upon purchase.

👍 Flexibility: You can use the loan for any car, new or used, without restrictions on make, model, or mileage.

👍 Fixed repayment schedule: Most personal car loans have fixed interest rates, which means your monthly payment stays the same over the life of the loan.

Cons of personal loans

👎 Higher interest rates: Personal loans can have higher interest rates compared to secured loans or specific car finance options, particularly if you have a lower credit score.

👎 Credit requirements: These types of loans often require a good to excellent credit score for approval.

👎 Potential for over-borrowing: Without the structure of a car-specific loan, you might be tempted to borrow more than you need or can afford.

How do personal loans work?

When you take out a personal loan, the lender provides you with a lump sum of money that you agree to pay back, with interest, over a set period of time. This is usually done in monthly instalments. The interest rate can be fixed (where the interest rate and monthly repayments stay the same for the duration of the loan) or variable (where it can go up or down). If you’re using a personal loan to buy a car, you’ll own the vehicle outright from the start. You’re free to sell the car at any time, but you’ll still have to continue making the loan repayments until the loan is paid off.

For example…

Details Example figure
Car value
£12,000
Loan amount
£12,000
APR
18.2%
Term length
48 months
Total amount repayable
£16,572.22
Monthly repayment
345.23

The example figures above are provided for illustrative purposes only and actual repayment amounts may vary. To find out actual repayment amounts from great lenders, search for quotes here.

Car refinancing is the process of taking out a new loan to pay off the existing loan on a car. This is typically done to get a lower interest rate, reduce monthly payments, or change the term length of the loan. Car refinancing is ideal for individuals who:

Have improved their credit score since their original loan and can now qualify for a lower interest rate.

Want to reduce their monthly car payments.

Need to adjust the term length of their loan.

Pros of refinancing

👍 Lower interest rates: If you can secure a loan with a lower interest rate, you can save money over the life of the loan.

👍 Lower monthly payments: Refinancing can potentially reduce your monthly payments, making it easier to manage your budget.

👍 Change the loan term: You can adjust the length of your loan to better fit your current financial situation.

Cons of refinancing

👎 Potential fees: Some loans have prepayment penalties or refinancing fees, so it’s important to check the terms of your original loan.

👎 Longer loan term: If you refinance to a longer term to lower your monthly payments, you could end up paying more in interest over the life of the loan.

👎 Temporary dip in credit score: Applying for a new loan can result in a hard inquiry on your credit report, which can temporarily lower your credit score.

How does car refinancing work?

When you refinance a car loan, you’re essentially replacing your current car loan with a new one. This involves a lender (either a different one or the same one) paying off your existing loan and setting up a new loan agreement with you. The new loan typically has different terms, such as a lower interest rate or a longer or shorter repayment period. You’ll then start making payments on this new loan until it’s paid off. Before refinancing, it’s crucial to review the terms of your current loan, particularly for any prepayment penalties or fees, and to shop around for the best refinancing options.

Finance your car with Car Finance Saver

Car Finance Saver is your go-to for simplifying the process of financing your next vehicle. Partnering with Monevo and offering a wide range of finance options, including HP, PCP, personal loans, and even specialised plans like PAYG, Car Finance Saver is committed to helping you find the perfect solution that fits your budget and lifestyle.

With a dedication to transparency, Car Finance Saver ensures you have all the information you need to make an informed decision. We pride ourselves on our personalised approach, understanding that each customer’s needs are unique.

Here at Car Finance Saver, we aim to make car finance accessible for everyone. Regardless of your credit history, we work with Monevo to provide options that work for you. So, whether you’re looking to finance your first car, upgrade to a newer model, or refinance your current vehicle, Car Finance Saver is here to make the process as straightforward and stress-free as possible.