Car refinance Car finance checklist: what to do before you apply/buy

Your roadmap to a better car finance deal

A well-prepared application can lower your APR, shrink monthly payments and avoid end-of-term surprises. With UK rates easing and digital applications rising, now is a smart time to get ready. Use this checklist to compare products, tighten your credit profile and time your deal.

Understanding APR is not just about percentages - it is about total cost over time.

Who will find this useful

If you are considering a new or used car in the UK and plan to use finance, this guide is for you. It is especially useful if you want predictable payments, are weighing PCP against HP, or need options with little deposit or imperfect credit.

Key terms explained clearly

• APR: The annual percentage rate reflecting interest and fees. Lower base rates typically mean lower APRs on finance.
• Deposit: Upfront payment that reduces the amount you borrow. Bigger deposits usually mean lower monthly costs and total interest.
• PCP - Personal Contract Purchase: Lower monthly payments, large optional final payment if you want to own the car, mileage limits apply.
• HP - Hire Purchase: Higher monthly payments than PCP, but you own the car after the last instalment and option-to-purchase fee.
• Balloon payment: The large optional payment at the end of PCP if you choose to keep the car.
• Mileage allowance: The maximum annual miles under PCP or lease. Exceeding it triggers per-mile charges.
• Pre-approval: A lender agrees in principle to finance you, subject to checks. It sets your budget and can strengthen negotiations.
• Total amount payable: The full cost of finance including deposit, interest and fees. It is the figure to compare across offers.

Short standout line: Focus on the total amount payable, not just the monthly number.

Choosing your finance route

PCP and HP dominate UK car finance, while leasing and subscriptions are growing. Here is how they compare in practice.

• PCP suits those wanting lower monthly payments and flexibility to change cars.
• HP suits buyers who want eventual ownership without a balloon payment.
• Lease fits drivers who never plan to own and want a newer car regularly.
• Subscriptions offer convenience with insurance and maintenance bundled, but at a premium.

Timing matters: the Bank of England cut the base rate to 4.25% in May 2025, with further reductions expected. End-of-quarter and year-end dealer promotions can add extra savings.

Costs, returns and real risks

• Interest rate trend: Falling base rates can lower APRs, but lenders adjust at different speeds. Compare multiple quotes on the same day.
• Total cost vs monthly payment: A longer term can drop the monthly figure but increase total interest.
• Depreciation: PCP and leases shift most residual value risk to the finance company, but charges apply for damage and excess miles.
• Fees: Check arrangement fees, option-to-purchase fees on HP, and early settlement charges.
• Insurance and maintenance: Subscriptions can bundle these, but run the numbers. Bundles are convenient, not always cheaper.
• Mileage planning: Set a realistic annual allowance. Underestimating can be costly at handback.

Rule of thumb: Aim for the shortest term you can comfortably afford to keep total interest lower.

Can you qualify - and at what price

Lenders assess affordability and credit profile. In the UK, Experian scores above 880 are considered good and above 960 excellent. Better scores typically unlock lower APRs.

What strengthens your application:

• Clean payment history, low credit utilisation and a stable address history of up to three years.
• A larger deposit - even 10-20% can materially reduce the cost of borrowing.
• Verified income via recent payslips or bank statements. Self-employed applicants often need SA302s and business accounts.

If credit is imperfect:

• You may face higher APRs or need a guarantor.
• No-deposit and specialist bad credit products exist in the UK market, but expect stricter terms.
• A broker can match you with lenders comfortable with your profile.

Step-by-step plan to secure a stronger deal

1. Check your UK credit reports and fix errors.
2. Clear or reduce credit card balances.
3. Decide PCP, HP, lease or subscription by priorities.
4. Set budget by total amount payable, not monthly.
5. Save a larger deposit if possible.
6. Gather required documents in advance.
7. Get pre-approved and compare like-for-like APRs.
8. Time your purchase around rate cuts and dealer promos.

Pros, cons and key considerations

PCP delivers lower monthly payments and the flexibility to upgrade, but the balloon payment can be large and mileage limits bite. HP is straightforward and leads to ownership, yet monthly costs are higher and tie up more cash flow. Leases simplify running costs but offer no path to ownership and include wear and tear rules. Subscriptions add convenience with insurance and maintenance, yet come at a premium.

If your goal is ownership, HP is usually cleaner. If you want flexibility and newer cars more often, PCP or lease may fit better. Always compare total amount payable across identical deposit and term.

Watchouts before you sign anything

• Read end-of-term options: return, trade-in or pay the balloon on PCP.
• Verify mileage allowances and per-mile charges.
• Check early termination rules and settlement figures.
• Confirm all fees and whether they are included in APR.
• Scrutinise optional add-ons like GAP insurance. Value them independently.
• Ensure affordability under stress - could you still pay if rates or living costs rise?

Short standout line: If a deal looks cheap because the term is long, check the total interest.

Alternatives worth considering

• Pay cash if discounts outweigh finance incentives.
• Personal loan from your bank - often fixed-rate with no mileage limits.
• Salary sacrifice for EVs - potential tax advantages if your employer offers it.
• Car clubs or short-term rentals if you drive infrequently.
• Delay purchase while you build deposit and credit, especially in a falling-rate environment.

Frequently asked questions

Q: What documents do I need for UK car finance? A: Proof of identity (driving licence or passport), proof of address (recent utility bill or bank statement), income evidence (payslips or bank statements) and typically three years of UK address history. Self-employed applicants may need SA302s and business accounts.

Q: Is now a good time to apply with rates changing? A: With the base rate at 4.25% in May 2025 and expectations of further easing, APRs may trend lower. Compare offers today and be ready to renegotiate if rates fall before you finalise.

Q: PCP or HP - which is cheaper? A: PCP usually has lower monthly payments but may cost more if you buy the car by paying the balloon. HP has higher monthly payments but leads to ownership without a balloon.

Q: Can I get finance with a small or no deposit? A: Yes, some UK lenders and brokers offer no-deposit options. Expect higher APRs and stricter affordability checks. A larger deposit typically reduces total cost.

Q: Will a pre-approval help me negotiate? A: Yes. A firm budget and rate in hand can secure better terms and streamline the dealership process.

Q: What about mileage limits? A: PCP and leases include mileage caps. Exceeding them leads to per-mile charges at handback. Choose an allowance that reflects your real driving.

Make your next move with confidence

• Compare at least three like-for-like quotes on the same day.
• Optimise your credit and deposit before you apply.
• Use pre-approval to set your budget, then time the purchase around dealer promotions.

If you want a curated shortlist and support across lenders, consider speaking with a broker who can search based on your credit profile and vehicle choice.

Important notice

This guide is general information for UK consumers and not personal financial advice. Finance is subject to status, affordability and vehicle valuation. Always read the agreement carefully and seek independent advice if unsure.