Best Car refinance Car finance: how to choose the right option

Best Car refinance Car finance: how to choose the right option

Setting the scene

Choosing car finance is not only about the monthly figure - it is about total cost, ownership, and flexibility. Here is a clear UK-focused guide to help you compare PCP, HP, loans, and leasing before you sign.

Who will benefit

If you are weighing lower monthly payments against long-term ownership, want to understand rates and fees in today’s market, or need options with little upfront cash, this guide is for you. It suits first-time buyers, upgraders, and EV-curious drivers across the UK.

Key ideas to know first

• APR: The annual cost of borrowing including fees. UK car finance typically ranges around 8.9% to 14.9% APR, with some deals up to 19.9% depending on credit and terms.
• PCP: Lower payments with a large optional final balloon to own. Suits drivers who like to change cars regularly and can manage mileage limits.
• HP: Higher monthly payments than PCP but you own the car after the final instalment. No balloon payment.
• PCH leasing: You never own the car - you pay to use it, then return it.
• Deposit: Many deals ask for 5% to 20% up front. Some no-deposit options exist but often at higher APR or tighter criteria.
• 0% APR finance: Limited-time offers on new cars for strong credit profiles, often with larger deposits and strict terms.
• Average monthly cost: UK average payment sits around £244 - up 8% since 2022 - so budgeting matters.
• Credit score: Better scores unlock lower APR and more choice. Poor credit can push APRs higher.
• Mileage caps: PCP commonly includes mileage limits. Exceeding them can add charges.

Clarity on ownership, term, and total cost is your financial safety net.

Your main choices compared

• PCP vs HP: PCP offers lower monthly cost but demands a large balloon to own. HP spreads ownership cost throughout, ending with clear title.
• 0% APR: Great if you qualify and the deposit suits your cash flow. Availability is limited and often new-car only.
• EV finance: Structure mirrors PCP or HP, but consider battery warranty, residual values, and incentives.

What it might cost you - and why

• Current UK market APRs cluster around 8.9% to 14.9%, with some reaching 19.9% for weaker credit or longer terms. A better score usually means cheaper borrowing.
• Average monthly payments near £244 indicate rising commitments since 2022. Budget for insurance, maintenance, tyres, and road tax where applicable.
• No-deposit deals ease the initial hit but can raise total interest paid. Run the numbers over the full term.
• PCP mileage penalties can erode value if you drive more than expected. Add a buffer to your estimate.

Standout point: Always compare total amount payable - not just the monthly figure.

Can you get approved

Lenders assess income stability, existing credit, debt-to-income, and deposit size. Clean credit histories tend to access 8.9% to 14.9% APR ranges, while thin files or recent issues may face higher rates up to 19.9% or stricter terms. A bigger deposit can improve approval odds and reduce interest. For 0% APR manufacturer offers, expect tighter criteria and often larger deposits. If you are exploring EVs, lenders will consider predicted residuals, which influence PCP balloons and monthly pricing. Using a broker that canvasses multiple lenders can widen your options if your profile is complex.

From application to keys - simple steps

1. Check credit report and correct inaccuracies.
2. Set budget - monthly and total payable.
3. Choose product type: PCP, HP, loan, or lease.
4. Compare APRs and fees using UK comparison tools.
5. Get pre-approval from broker or lender.
6. Review mileage limits and end-of-term options.
7. Read the agreement - charges, fees, early settlement.
8. Sign, collect car, and set up direct debit.

Advantages and trade-offs

PCP offers lower monthly payments and flexibility at the end, but the balloon payment to own can be significant and mileage limits apply. HP provides straightforward ownership without a balloon, though monthly payments are higher than PCP. Leasing can keep costs predictable if you never want to own, but wear-and-tear and mileage charges are common. Bank or credit union loans give you ownership from day one, but interest rates depend heavily on your credit score and term. No-deposit options help cash flow today but often raise the total payable. 0% APR can be excellent value if the car price and terms suit you.

Red flags before you sign

• Do not ignore total amount payable - small monthly differences add up.
• Check for mileage, excess wear, and early settlement fees.
• Confirm whether servicing, breakdown cover, and warranties are included.
• For PCP, be realistic on the balloon payment - can you refinance or pay it?
• Avoid stretching terms just to lower monthly cost if it inflates interest.
• If rates approach the upper teens, consider waiting while you improve credit.

The best deal is the one you can comfortably afford throughout the term.

If your first choice does not fit

• Consider nearly-new cars or different trims to access better APR or 0% deals.
• Use brokers like Car Finance 247 or CarMoney to scan multiple lenders.
• Try Carwow or GoCompare to compare rates, fees, and terms side by side.
• Improve your credit score, save a larger deposit, or shorten the term to reduce interest.
• Evaluate public transport or car subscription if you drive infrequently.

FAQs

• What APR should I expect in 2025? Many borrowers see 8.9% to 14.9%, with some higher up to 19.9% depending on credit, term, and vehicle type.
• Is PCP cheaper than HP? Monthly payments are usually lower with PCP, but owning the car typically requires a large balloon. HP spreads ownership across the term with no balloon.
• Are 0% APR deals real? Yes, usually on new cars with strong credit, limited availability, and often larger deposits.
• Can I finance with no deposit? Some lenders offer it, but expect higher APR or stricter criteria. Compare the total payable.
• Will mileage limits catch me out? PCP and leases often limit mileage. Exceeding these caps triggers per-mile charges.
• Do EVs finance differently? Structures are similar to PCP or HP, but residual values and battery warranties influence pricing and balloons.
• Should I use a broker or compare myself? Do both. Brokers widen lender access, while tools like Carwow and GoCompare benchmark rates and terms.

Make your next move

• Gather quotes from at least three lenders or brokers. Use UK comparison tools to benchmark APR, fees, and total payable. Model PCP, HP, and loan outcomes side by side, then choose the option that balances affordability, flexibility, and ownership.

Important note

This guide provides general information for UK consumers and is not financial advice. Rates, eligibility, and offers vary by lender and credit profile. Always read your agreement and consider independent advice before committing.