Car refinance Car finance for beginners: a step by step starter guide

Your first car finance plan in plain English

The UK car finance market is vast and familiar territory for buyers. With over 80% of private new cars bought on finance and a strong used market, the right deal can make car ownership affordable without surprises. Here is how to approach it with confidence.

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

Who will benefit from this guide

• First-time buyers who want a straightforward explanation
• Drivers considering no deposit options to manage cash flow
• Households weighing new vs used car finance
• Anyone comparing PCP, HP, leasing or personal loans
• EV-curious shoppers looking at finance for electric cars

Jargon made simple

Car finance is the arrangement you use to spread the cost of a car. In the UK, it usually works at the point of sale and is underpinned by a credit check.

• APR: The annual cost of borrowing, including interest and some fees. Representative APRs often range from 10.9% to 19.9% depending on profile and product.
• Deposit: An upfront payment that reduces how much you borrow. No deposit options exist if you qualify.
• Term: The length of your agreement, usually 24 to 60 months.
• Balloon/Guaranteed Future Value (GFV): A larger final payment in PCP that lets you buy the car or hand it back.
• Equity/Negative Equity: The difference between what the car is worth and what you owe. Negative equity can limit your options mid-term.
• Mileage Limits: Common in PCP and leasing. Exceeding limits leads to per-mile charges.
• Voluntary Termination: In regulated HP and PCP, you may end the agreement once you have repaid at least 50% of the total amount payable, subject to conditions.

Choosing a route to the driver’s seat

The UK market is sizeable - valued at nearly £39 billion in 2024 - and finance is offered on most forecourts and online. Buyers increasingly use digital journeys, including no deposit options and quick decisions. Here is how the main products compare:

PCP spreads cost with a large optional final payment. HP divides the full price into fixed instalments. Leasing is effectively long-term rental. A personal loan is separate from the dealership and can be competitive if you have strong credit.

What it might cost and why

• Market backdrop: In July 2025, new business volumes rose 1% year on year and values grew 4%, helped by a Bank Rate cut. August showed a 5% volume dip, showing normal fluctuations. Timing matters.
• New vs used: Over 2 million cars were financed at the point of sale in 2024. Finance backed more than 80% of private new car registrations and 19% of used sales. Used car demand was strong, with 7.6 million sales in 2024 and an average car age of 9.4 years.
• APR range: Representative APRs commonly run 10.9% to 19.9%. Your rate reflects credit score, deposit size, term, and vehicle type.
• No deposit: Helpful for cash flow, but monthly payments and total interest can increase.
• EVs: Finance is supporting the transition. In July 2025, 15.5% of new finance volumes were for BEVs, and used BEV finance reached 8%.

Short standout line: A lower APR often saves more than a larger deposit over long terms.

Can you qualify

Eligibility varies by lender but typically includes:

• UK residency and proof of address
• Age 18+ with full or provisional licence
• Regular income and affordability evidence
• Credit check results aligned to the lender’s criteria

Things that help:

• Stable address and employment history
• Lower debt-to-income ratio
• Providing a deposit, even a small one

If you are worried about affordability during the term, contact your lender early. Many offer payment plans, short payment holidays or contract adjustments to prevent arrears.

From window shopping to signed keys - the steps

1. Set a realistic budget including insurance, tax, fuel and maintenance
2. Check your credit file and correct errors
3. Pre-qualify or get a soft search decision online
4. Choose car and product: PCP, HP, lease or loan
5. Compare APRs, fees, deposit, term and mileage
6. Read the pre-contract information and key facts
7. Sign digitally or in-dealer after affordability checks
8. Take delivery and set up Direct Debit promptly

Upsides and trade-offs

Pros:

• Spreads cost for access to newer or more reliable cars
• Predictable monthly budgeting
• Strong consumer protection on regulated products
• Digital journeys make applications quick

Cons:

• Total cost can be higher than paying cash
• Mileage and condition charges on PCP and leases
• Risk of negative equity if values fall
• Early exit can be limited or costly

Checks before you commit

• Interest rate path: A lower Bank Rate can improve deals, but policy events like the Autumn Budget may shift sentiment.
• Real affordability: Stress test for higher insurance, tyres, and servicing.
• Total amount payable: Compare across products, not just the monthly.
• Mileage fit: Choose a realistic allowance to avoid charges.
• Used car condition: Independent inspections help protect against surprises.

Blockquote tip: If your circumstances change, talk to your lender early. Help is available and early action protects your credit file.

Alternatives if finance is not the fit

• Buy for cash after saving - zero interest, total control
• Short-term car subscriptions - bundle insurance and maintenance
• Public transport and car clubs - reduce ownership costs
• Employer schemes or salary sacrifice for EVs - potential tax benefits

If your credit profile is building, consider a smaller loan, a shorter term, or a modest deposit to improve pricing and acceptance.

Common questions, clear answers

• Is no deposit really possible? Yes, if you meet criteria. Expect slightly higher monthly payments or APR compared to deals with a deposit.
• PCP vs HP - which is cheaper? HP often has lower total cost because there is no balloon, but PCP can offer lower monthly payments. Compare total amount payable.
• Can I finance a used car? Yes. Around 19% of used car sales use finance, and digital platforms increasingly support this with fast decisions.
• What if rates change? Lenders price fixed-rate agreements at the outset. Market rate moves affect new deals more than existing ones.
• Can I finance an EV? Yes. Finance for BEVs is growing, with notable uptake in both new and used markets.
• What if I struggle with payments? Contact the lender immediately. Support can include payment holidays or term adjustments.
• Will mileage limits catch me out? Choose a realistic allowance. Exceeding limits leads to per-mile charges on PCP and leases.

Make your move with Switcha

• Check your credit score and set a target monthly budget
• Compare PCP, HP, leasing and loans side by side
• Use Switcha tools to see total payable and likely APRs
• Shortlist two cars and get pre-qualified online
• Lock in a rate and book a test drive this week

Short standout line: The best deal is the one you can comfortably afford today and tomorrow.

Important information

This guide is for general information only and does not constitute financial advice. APRs, eligibility and offers vary by lender and your circumstances. Always read pre-contract information and, if unsure, seek independent advice.