How to save money on car finance

Start smart: cut costs without cutting corners

Car finance can be a sensible way to spread the cost of a car while keeping your monthly budget steady. In 2025, the average UK monthly payment is around £244 and typically sits near 11% of income. Costs have risen more slowly than both inflation and wages, which is encouraging, but the wrong deal can still strain your finances. The key is knowing what you can afford, choosing the right product, and avoiding traps like zero-deposit offers that push up total interest.

We will walk through practical steps that help you benchmark your budget, pick cheaper models, and time your purchase. We will also explain the differences between PCP, HP and loans in plain English, so you can see what fits your plan. If you are already in an agreement, we will flag options to lower payments without harming your credit, and highlight the FCA’s proposed redress scheme that could put money back in your pocket.

Good finance is affordable, predictable and transparent. If it is not all three, pause and reassess.

Who this guide will help

This guide is for UK drivers comparing their first car finance deal, upgrading on a budget, or looking to reduce existing costs. It is especially useful if you are balancing household bills, want to keep repayments within safe limits, and value clear, jargon-free guidance.

What makes a car finance deal genuinely affordable

Affordable means sustainable. A safe benchmark is to keep your car payment within 10-15% of your annual salary, and all motoring costs within 20% of your monthly income. With a median UK salary around £33,000, that points to keeping total car payments around £3,300-£4,950 per year and ensuring fuel, insurance and maintenance do not tip your budget over the 20% line. For many households, the current UK average payment of £244 per month is a helpful sense check.

Your choice of product has a big impact. PCP usually offers lower monthly payments and flexibility to hand the car back, while HP typically suits drivers who want to own the car outright by the end. A straightforward bank loan can work if you secure a competitive APR and value full ownership from day one. The average UK car loan is about £12,508 in 2025, with APRs generally lower for higher earners. That gap underlines why shopping around matters.

Car choice is equally powerful. Cheaper-to-finance models tend to hold value better and cost less to insure and maintain. Recent UK rankings show several budget-friendly makes that can bring payments close to or even under £200 a month, helping you stay comfortably within those affordability rules.

How to reduce your payment the right way

Begin by setting a firm budget using the 10-15% guideline, then stress test it for fuel, insurance and unexpected costs. If a deal fails the 20% all-in test, reduce the car price or switch product.

Avoid zero-deposit deals if you can. A 5-10% deposit meaningfully cuts monthly costs and total interest. If savings are tight, consider a smaller, newer-to-you model or extend the term with caution, ensuring the total cost and negative equity risk remain acceptable. PCP can lower payments compared with HP, but remember the optional final payment and mileage limits.

Shop at the right time. Market data in 2025 shows mixed volumes - an 11% jump in March followed by a 5% dip in April. Softer months can attract dealer incentives, and expected rate cuts could filter through to finance offers, especially on greener models.

Finally, polish your credit. Check your reports, correct errors, and clear small debts where possible. Lenders reserve the best APRs for stronger profiles.

Why these steps protect your wallet

Keeping payments within 10-15% of income guards against over-commitment and protects your emergency buffer. With household loan debt averaging around £5,711, it is vital not to add pressure that could lead to missed payments or costly borrowing later. Deposits reduce interest, improve acceptance odds, and limit negative equity risk if you need to change car early. Choosing models that are proven cheap to finance helps you stay within budget even if fuel or insurance rises.

Timing your purchase can secure incentives in a resilient but patchy market, while maintaining good credit can save hundreds over the life of an agreement. If you believe you were affected by historical car finance mis-selling, the FCA’s proposed average £700 redress could offset costs or build a deposit for your next deal.

Pros and cons at a glance

Watchpoints that save you money

Read the total amount payable, not just the monthly figure. Check the APR, fees and any optional products bundled into the agreement. For PCP, be realistic about mileage - underestimating it can trigger excess charges. For HP, ensure the term suits the car’s age so you do not overpay relative to residual value.

Consider how stable your income is. If overtime or bonuses vary, keep payments at the lower end of the 10-15% range. Be aware of negative equity early in the term, particularly with zero or low deposits. If you are currently financing a car, ask your lender about options to vary the agreement if you are struggling - it is better to act early than miss payments.

Lower-cost alternatives if finance is tight

1. Buy a cheaper used car with cash savings.
2. Increase deposit to 10% to reduce interest and improve acceptance.
3. Extend term moderately to trim payments, checking total cost.
4. Choose a smaller engine or lower insurance group.
5. Car share or use subscription for short-term needs.
6. Delay purchase to build a bigger deposit while monitoring rates.
7. Consider a personal loan if APR beats dealer finance.
8. Explore salary sacrifice for eligible electric cars via your employer.

Common questions, clear answers

• What is a safe monthly payment? Keep it within 10-15% of your salary and ensure total motoring costs stay under 20% of monthly income.

• Is zero-deposit a bad idea? It is not inherently bad, but it increases monthly payments and total interest. A 5-10% deposit usually saves money and reduces risk.

• When is the best time to buy? Market conditions vary. With mixed 2025 volumes, quieter months can bring incentives. Watch for rate changes and dealer targets.

• How do APRs vary? Higher earners typically access lower APRs. Average car loans are around £12,508, but your rate depends on credit, income and lender policy.

• Could I receive redress? The FCA has proposed a car finance mis-selling scheme with an estimated average payout near £700. Check your past agreements for eligibility.

How Switcha helps you pay less

Switcha compares UK finance options side by side so you can see the true total cost, not just the monthly headline. We show PCP, HP and loan choices in clear pounds and pence, factoring in deposit, term, APR, fees and any final payment. Our tools apply the 10-15% and 20% affordability guides to your own numbers, helping you set a safe budget before you start shortlisting cars.

We also surface real-world running costs like insurance bands and typical servicing to prevent surprises later. If you already have finance, we can help you check for savings, understand settlement figures, and explore fair options to lower payments. We keep an eye on market movements, so if incentives or rate cuts appear, you will see them quickly. Transparent, independent and built for UK drivers, Switcha makes smart decisions simpler.

Next step: set your monthly cap using the 10-15% rule, then compare PCP vs HP in minutes to see which meets your budget with room to spare.

Important information

This guide is general information, not financial advice. Finance eligibility and rates depend on your circumstances. Always read the agreement, check the total amount payable and consider independent advice if you are unsure.