Car refinance Car finance cost guide: typical prices & fees in the UK

What UK drivers really pay for car finance

A measured look at the numbers helps you avoid costly surprises. In 2025, the typical UK car finance payment sits around £244 per month, with representative APRs commonly between 10.9% and 19.9%. We explain how products differ, which fees to expect, and how to structure an affordable deal.

Who will benefit from this guide

If you are weighing up PCP against HP, hunting for a zero-deposit deal, or thinking about refinancing an existing agreement, this guide is for you. It is written for UK drivers who want clear, credible explanations, current market context, and steps to reduce overall costs without compromising on the right car.

The language of car finance - decoded

Understanding how the pieces fit together is half the battle.

• APR: The interest rate plus compulsory charges, expressed annually. Compare deals using representative APR, but check your personal rate.
• Deposit: Upfront payment that lowers what you borrow. Zero-deposit deals increase monthly cost and total interest.
• Term: The length of the agreement, typically 24-60 months. Longer terms cut monthly payments but raise total interest.
• PCP - Personal Contract Purchase: You finance depreciation, then choose to pay a balloon to own, hand back, or part-exchange.
• HP - Hire Purchase: You repay the full car price plus interest and own it at the end, often with an option-to-purchase fee.
• Balloon (GFV): Guaranteed Future Value on PCP. Sets the optional final payment and underpins lower monthly costs.
• Mileage allowance: PCP and PCH include annual caps. Exceeding them triggers pence-per-mile charges.
• Fees: Expect documentation, option-to-purchase (HP), and excess mileage or damage charges on return products.
• Affordability check: Lenders assess income, outgoings, and credit history to set your rate and maximum borrowing.

Clarity on APR, term, and balloon is the quickest route to a fair monthly payment.

Your financing menu - compared clearly

Different products suit different priorities. Use this comparison as a starting point.

Other choices to consider:

• Zero-deposit deals - helpful if savings are tight, but expect higher monthly and total interest.
• Nearly-new and used finance - popular in 2025 as buyers manage budgets, though used values and advances have edged up.
• EV-specific support - in Scotland, interest-free EV loans reduce borrowing cost and can transform total ownership cost.

What it really costs - and why it moves

• Typical payment: The UK average monthly car finance payment is around £244 in 2025, up roughly 8% year on year. Despite the rise, it has grown slower than wages and inflation, supporting relative affordability for many households.
• APRs you will see: Representative ranges often sit between 10.9% and 19.9%. Your exact rate hinges on credit profile, vehicle age, deposit, and term.
• Market backdrop: New business value is forecast to grow about 6% in 2025, with stronger momentum in new-car finance than used. Rate cuts and improving sentiment are lifting competition and deal availability.
• Living costs: Energy, council tax, rent and broader inflation still squeeze budgets. Stretching terms can ease monthly bills but usually increases total interest paid.
• Zero-deposit impact: Paying nothing upfront maximises borrowing. Expect higher monthly cost and greater risk of negative equity if values soften.
• Used market dynamics: Advances on used cars have grown, but the number of cars financed is flat - a sign that higher prices may be limiting choice for some buyers.

A lower monthly can disguise a higher total cost. Always check the full amount payable.

Can you qualify - and at what price

Lenders must test affordability. The stronger your profile, the sharper your rate.

• Credit history: Clean payment records and low utilisation support better APRs. Thin files or past missed payments push rates higher.
• Income and outgoings: Lenders assess disposable income and existing debts. Expect evidence such as payslips or bank statements.
• Deposit: Even 10% can meaningfully cut monthly costs. Zero deposit is possible, but price-protection is thinner.
• Vehicle criteria: Age, mileage and type can affect accepted terms and APR. New and nearly-new models often attract keener rates.
• Residency and ID: UK address history and valid identification are standard. Additional proofs may be requested for self-employed applicants.
• Regional support: In Scotland, interest-free loans for EVs can materially cut costs - worth exploring if you are EV-curious.

If a lender cannot justify affordability, they cannot lend. Improving your profile for a month or two can pay off.

From quote to keys - a simple pathway

1. Set a monthly figure you can comfortably afford.
2. Check your credit report for accuracy and quick wins.
3. Decide product fit - PCP, HP, lease, or loan.
4. Set deposit size and maximum term you will accept.
5. Get pre-approval and compare like-for-like APRs.
6. Read fees, mileage rules, and return conditions carefully.
7. Negotiate price, part-exchange, and extras separately.
8. Finalise documents, then set direct debit and reminders.

Weighing it up - advantages and trade-offs

Pros

• Predictable monthly payments help budgeting in a tight economy.
• PCP and PCH keep you in newer, more efficient cars.
• Competitive market - expected growth should support deal choice.
• Potential FCA compensation may offset historic costs for some drivers.

Cons

• Higher APRs increase total cost versus cash purchases.
• Zero-deposit deals raise negative equity risk.
• Return products carry mileage and condition charges.
• Longer terms reduce flexibility if circumstances change.

Red flags before you sign

• Do not fixate on the monthly alone - compare total amount payable.
• Watch for high documentation or option-to-purchase fees on HP.
• Check mileage caps and pence-per-mile charges before choosing a PCP or PCH.
• Protect your credit file - multiple hard searches can nudge up your rate.
• Consider gap insurance only if the price is competitive, not bundled.

If an add-on is worthwhile, you can find it competitively elsewhere. Treat dealer extras as negotiable.

If the usual routes do not fit

• Refinance your existing agreement: If rates ease or your credit improves, refinancing can lower monthly cost. Check early settlement figures and any fees.
• Personal loans: Useful for private sales and older cars. Shop rates widely.
• Salary sacrifice EV schemes: Savings via income tax and National Insurance can outstrip headline APR differences for eligible employees.
• Car subscriptions: Flexible but typically pricier. Good for short-term needs.
• Buying outright: Removes interest cost entirely if you have the liquidity.

Common questions - clear, concise answers

• What is a normal monthly payment in 2025? Around £244 on average across the UK. Your figure will vary by deposit, APR, term, and car value.
• What APR should I expect? Many representative offers sit between 10.9% and 19.9%. Strong credit, a sensible term, and a decent deposit help reduce your rate.
• Is zero deposit a good idea? It lowers the barrier to entry but raises monthly cost and interest paid. Useful if savings are tight, risky if car values fall.
• PCP or HP - which is cheaper? PCP usually has lower monthly payments because you finance depreciation and a balloon remains. HP costs more monthly but you automatically own the car at the end.
• Can I get compensation for past agreements? The FCA has proposed a large compensation scheme for unfair historic motor finance practices. If eligible, average payouts could be about £700 per agreement.
• What about EV finance in Scotland? Interest-free loans for EVs are available with government support, cutting cost substantially for Scottish residents who qualify.
• Why are used car finance advances up but volumes flat? Higher prices and cost pressures mean similar numbers of cars financed, but higher values per agreement.

Take your next step with confidence

• Set a realistic monthly budget and a firm total cost ceiling.
• Check credit files, tidy utilisation, and clear small balances.
• Compare like-for-like quotes on APR, fees, term, and mileage.
• Consider refinancing if your rate drops or profile improves.

Switcha can help you line up transparent, comparable offers so you can choose the right product with clarity.

Important information

This guide is for general information only and is not personal financial advice. Rates, incentives, and eligibility can change. Always read the agreement in full and consider independent advice if you are unsure whether a product suits your circumstances.