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Things to consider when taking out car finance

We’ve pulled together a list of the key things to consider when buying a car on finance, making it easy to decide what’s right for you.

Get the facts before taking out car finance.

Get the facts before taking out car finance.

Buying a car is one of the biggest purchases you’ll make, so it’s important to get it right.

There are three main ways you can get a car – buying it outright, leasing the car, or taking out car finance.

We know it can be confusing trying to figure out which option is best for you, so we’ve compiled a list of things to consider when buying a car on finance.


First thing’s first, you need to be realistic about what kind of car you can afford. Consider your monthly outgoings and factor in the running costs associated with your chosen car, too. If your circumstances change partway through your agreement term, you will need to contact the finance company.

Looking after your car

At Arnold Clark, you also have the option to add a Service Plan onto your car finance deal, meaning you can also spread the cost of your servicing and MOT tests throughout your finance term, instead of paying lump sums for servicing in the future.

Be aware that certain finance products will require you to service the car in accordance with the manufacturer’s recommendations and to keep the car in good condition. Even if you don’t choose one of these finance products, looking after your car properly will help sustain its eventual resale value.

Choosing the right type of finance for you

There are a number of car finance options to suit different customers and circumstances.

The main options are:

  • Hire Purchase (HP)
  • Personal Contract Hire (PCH)
  • Personal Contract Purchase (PCP)
  • Personal loan

For more information, you can read our ‘Car finance explained’ article, or visit your local Arnold Clark branch, where our expert staff will be happy to help with any questions you have.

Getting accepted for car finance

Your chances of getting accepted for car finance will depend on your credit rating.1 At Arnold Clark, we have a panel of 20 lenders to choose from, meaning you have a good chance of finding a deal that suits you.

Typically, you’ll know if you’ve been accepted for car finance the same day you apply for it.

If you’re unsure about being accepted for car finance, take a look at our eligibility FAQs.

What to do when your term ends

With Personal Contract Purchase, you have three options when your finance term ends:

  1. Pay the Optional Final Payment (OFP) and any applicable charges to take title/ownership of the vehicle.
  2. If the vehicle is worth less than the OFP you can return the vehicle and walk away (subject to any applicable charges as per the Agreement terms and conditions).
  3. If the vehicle is worth more than the OFP and any applicable charges you can part-exchange the vehicle using the excess as equity for a deposit towards your next car or receive it as cash back.

With Personal Contract Hire, you either return the car when your contract ends, request an extension of your existing contract by six or 12 months (depending on the leasing company), or you take out a contract on a new one.

With both Personal Contract Purchase and Personal Contract Hire, additional costs may be applicable if the vehicle is not maintained to a fair standard. If you choose to return the vehicle at the end of the Agreement and you have exceeded the mileage allowance you will have to pay an excess mileage charge. If you wish to cancel the contract and return the car then a penalty fee may apply.

With Hire Purchase, you can take ownership of the vehicle when you have paid all the amounts due to the Finance Company, including a final Option to Purchase Fee. Until this point the vehicle would be owned by the Finance Company.

With Personal Loan, you would immediately take ownership of the vehicle.

As with any loan, you will probably pay slightly more

Car finance usually includes an interest charge, so you will usually end up paying more for your car with finance than you would if you bought the car outright with cash. The rate of interest depends on many different factors, such as your credit score, the general economic climate and the lender’s rates.

However, the good news is that the APR you agree to on the day you are accepted for finance is the APR you will pay for the duration of your finance term. There’s no need to worry about rising interest rates, as yours will remain constant.

Remember, you don’t always own the vehicle

While you’re paying off your finance, the car usually still belongs to your finance provider (unless you have taken out a Personal Loan, in which case you own the car from day one). Depending on which type of finance you have taken out, you may own the car at the end of your agreement. With PCP, you can pay a balloon payment to keep the car. With HP, you own the car by paying the final Option to Purchase fee, which can be as little as £1. (Assuming you have stuck to your agreement and not broken any of the terms set out at the start.) With PCH, you can never own the vehicle.

Restrictions on use

All agreements (aside from Personal Loans) will require you to have the car serviced in accordance with the manufacturer’s recommendations. There are also restrictions on transferring ownership.

There are certain circumstances where getting car finance may be a little less straightforward. If you’re a taxi driver, for example, PCP and HP providers may be reluctant to offer you a deal due to the high mileage you’re likely to accrue and the difficulty in forecasting the vehicle value at the end of the agreement. In this case, your best option may be to use a Personal Loan.

Some finance deals (PCP and PCH) will also have mileage restrictions. These will be agreed at the start of your term. If you exceed the agreed mileage, you will usually have to pay additional charges when your agreement ends. These charges are set out in advance in the agreement.

There may also be restrictions on travelling outside the UK. If you wish to drive the car outside the UK you may need approval from the finance company.

1. Money Advice Service

Please note that full terms and conditions apply for any particular finance agreement. This article is designed to provide an overview of some of the common questions relating to car finance. However, it is not in any way an exhaustive list. Your particular circumstances will play an important part in any decision to apply for car finance and you should seek independent advice if you are unsure what this may mean for your credit score and ability to afford any loan repayments.

About the Author

Sophie McGraw

Staff writer at Arnold Clark