Buying your first car on finance: the honest guide

Are you planning to buy your first car on finance? Learn about your finance options, budget considerations and who to buy from.



Buying your first car is a big deal – and often an exciting one too.

Yet with the excitement can come a gnawing sense of anxiety. You may worry that you're not getting the best bang for your buck. And you may feel overwhelmed by the plethora of car finance options available.

Here at Zoomo, we keep things simple. We believe in laying out the options clearly and simply and pointing customers in the right direction.

And that applies even if your credit score is less than glowing. We work with specialist lenders to make sure that your financial history won't determine your driving future.

So, if you need a guiding hand through the world of car finance, read on. We hope it helps you get behind the wheel of your first automobile.

PCP or HP?

There are two main types of car finance: PCP and HP. Let's break down both options.

Personal contract purchase (PCP)

PCP car finance involves paying a deposit up front and then paying monthly instalments for an agreed period.

At the end of that period, you have a choice. You can either make a large "balloon" payment and own the car or hand the car back to the dealer.

PCP is a popular choice and it's often the first suggestion of car dealers. There is, however, another option: HP or hire purchase.

Hire purchase (HP)

HP agreements begin in the same way as PCP agreements. You pay a deposit followed by monthly instalments. However, instead of buying the car with a final balloon payment, you own the car automatically at the end of the finance period.

Naturally, this means monthly payments are higher with an HP agreement than with a PCP. The advantage is that you know you'll have the car at the end of the contract.



Which should I choose: PCP or HP?

The choice between PCP and HP depends on a few factors. At the end of the day, it depends on your unique requirements and financial situation.

You might want to…

• Choose PCP: if you want lower monthly payments and flexibility at the end of the contract.
• Choose HP: if you're in a position to pay higher monthly payments with lower interest and you definitely want the car at the end of the agreement.
  
  

The importance of budget

Now that you've chosen your car finance type, you'll need to give some serious thought to your budget. Without a clear budget, you're likely to end up with a car you can't afford.

1. Make sure you have cash for a deposit

First, you must have access to ready cash for the deposit. This is typically 10% of the car's total value.

2. Be sure you can afford the monthly payments

Secondly, you'll need to look ahead and figure out what you can afford each month.



If you're taking out a car finance agreement, monthly payments are inevitable. The good news is that most agreements have fixed monthly instalments. This means you don't have to plan for nasty price hikes.

3. Plan for ongoing costs

Thirdly, you should plan for running costs and maintenance costs. These can include car insurance, fuel, annual MOTs, maintenance, servicing and even clean air charges.

4. Stick to the mileage limit

Finally, you should consider your probable annual mileage. This is because PCP agreements and car lease agreements tend to come with a mileage limit. You'll be penalised for going over the limit, so make sure you have a rough idea of how much you'll drive the car.

Keeping these things in mind boosts your chances of getting a car within your budget and not running into financial difficulties down the line. If in doubt, ask your dealer for guidance.

An experienced and professional dealer will be happy to talk you through your options.

Who should I buy my first car from?

You have two main options when buying a car. You can buy from a private seller or you can buy from a car dealership.

You can sometimes find good deals with private sellers, but there's always the risk of getting scammed and it can be hard to get a refund.

Buying from a dealership is a much safer bet. When buying from a dealer, here are some questions to ask before you pay:

1. How much is the deposit?
2. How much are the monthly payments?
3. How much is the final balloon payment? (In the case of a PCP agreement)
4. How much interest will I pay?
5. How long is the contract?
6. What's the mileage limit?
7. What rules are there around wear and tear?
8. Are maintenance and servicing included in the deal?
   
   

Asking these questions before committing to a purchase dramatically increases your chances of getting a car on finance that's right for you.

What if I've got bad credit?

People have bad credit scores for all sorts of reasons. And while mainstream lenders are likely to give your application a swerve, specialist brokers like us are happy to help.

The fact is that you'll need to pass a credit check to get a car on finance. If your application is turned down, it will be marked on your credit report. This is one of the main reasons why you should work with a specialist broker if you know you have bad credit.

It's also worth noting that applications for credit count as hard searches. This means they stay on your credit file for six years and affect your credit applications in future.

To carry out soft searches that don't make a mark, you should work with a car finance broker that will carry out eligibility checks on your behalf.

You may also be offered a guarantor loan. This means someone else agrees to pay back the loan if you become unable to. This person is known as the "guarantor".

We hope this guide helps you take the first steps to buying your first car on finance.

And if you're looking for bad credit car finance in Newcastle, we can help. Learn more about how finance works or apply online today – it only takes a few minutes.