Vehicle Finance: Your Complete Guide to Car Financing Options with The Business Finance Group
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With average new car prices increasing and used car values remaining elevated, paying for a vehicle outright simply isn’t realistic for most UK drivers. That’s where vehicle finance becomes essential, allowing you to spread the cost over manageable monthly payments while getting behind the wheel sooner.
What is Vehicle Finance?
Vehicle finance allows you to spread the cost of a car over monthly payments instead of paying the full amount upfront. Rather than needing thousands of pounds in savings, you can drive away in your chosen vehicle and repay the loan amount over a period typically ranging from 12 to 60 months, plus interest.
Lenders provide funds to purchase your vehicle, which you repay over the agreed loan term with interest. The monthly repayments are calculated based on the vehicle price, your deposit amount, the annual percentage rate, and your chosen repayment period.
Typical loan amounts range depending on your financial circumstances, credit rating, and the vehicle you want to purchase.
Types of Vehicle Finance Available
Understanding the different finance options available is crucial for making the right choice. Each type of car finance has distinct advantages and limitations, affecting everything from your monthly payments to vehicle ownership rights.
Hire Purchase (HP)
Hire purchase represents one of the most straightforward car finance options available to UK consumers. With an HP plan, you’ll own the car automatically after making all payments, typically with a small Option to Purchase fee at the end of the agreement.
This finance agreement typically results in higher monthly payments compared to personal contract purchase options, as you’re financing the vehicle’s full value minus your deposit. However, there are no mileage restrictions or excess wear charges to worry about, making it ideal for high-mileage drivers.
During the hire purchase hp agreement period, you cannot sell or modify the vehicle without the lender’s permission, as they technically own it until the final payment is made. Once you’ve completed all payments and paid any purchase fee, you’ll receive the vehicle’s title and own it outright.
Most suitable for drivers who want guaranteed ownership and plan to keep the car long-term, hire purchase offers peace of mind that you’ll eventually own an asset. The fixed monthly payments make budgeting straightforward, and there’s no optional final payment to worry about.
Personal Contract Purchase (PCP)
Personal contract purchase pcp has become increasingly popular due to its lower monthly repayments compared to traditional hire purchase. With PCP, you only finance the vehicle’s depreciation during your agreement term, not its full value.
At the end of your personal contract purchase agreement, you’ll face a balloon payment (typically 25-50% of the original price) if you want to own the car. This optional final payment is calculated based on the vehicle’s predicted residual value.
PCP agreements usually include annual mileage limits, with excess charges of 5-25p per mile if you exceed these limits. You’ll also need to return the vehicle in good condition, avoiding any significant damage beyond normal wear and tear.
At agreement end, you have three choices: return the car and walk away, pay the balloon payment to own it, or use any equity as a deposit on your next car. This flexibility makes PCP attractive for drivers who prefer changing vehicles every 2-4 years.
Personal Loans
Personal loans from banks or online lenders offer an alternative approach to vehicle financing. These are typically unsecured loans with fixed interest rates, depending on your credit score and the lender’s assessment.
With a personal loan, you own the car immediately and can sell it anytime without restrictions from a finance company. This option works particularly well when buying from private sellers, as many don’t accept HP or PCP agreements. You’ll need to apply online or visit a bank branch, and approval depends entirely on your creditworthiness rather than the vehicle’s value.
How Vehicle Finance Works
The vehicle finance process follows a straightforward process. Understanding each step helps ensure a smooth experience and better outcomes.
With The Business Finance Group start by choosing your vehicle and obtaining a quote. This quote becomes the basis for your finance application, determining how much you need to borrow after accounting for your deposit amount.
Submit your finance application with personal details, proof of monthly income, and vehicle information. Our applications can be completed online, requiring details like your driving licence number, employment status, and financial details including any existing credit commitments.
Upon approval, you’ll sign the finance agreement and arrange vehicle collection or delivery. This agreement outlines your monthly repayment amount, the total amount payable, and all terms and conditions. You’ll then make monthly payments via direct debit on agreed dates, with terms typically lasting 24-60 months.
Vehicle Finance Costs and APR
Understanding the true cost of vehicle finance requires looking beyond just monthly payments. The annual percentage rate combines interest, arrangement fees, and admin charges into one figure, making it easier to compare different finance options. Here at The Business Finance Group we make this process easy, simply fill out our vehicle finance form and we’ll get our experts to find the right deal for you!
Deposits and Down Payments
Your deposit amount significantly impacts both your monthly payments and the likelihood of finance approval. Higher deposits reduce your monthly payments and improve approval chances, especially if you have a poor credit rating. They also reduce the total interest you’ll pay over the agreement term, as you’re borrowing less money.
Part-exchange vehicles can contribute toward your deposit, with most dealers providing professional valuations. This approach is particularly convenient when upgrading your current car, as the equity transfers directly to your new finance agreement.
Early Settlement and Payment Options
Many finance agreements allow you to pay off your loan early, potentially saving money on interest charges. Check these costs before proceeding, as they might offset some of the interest savings from early repayment.
Some agreements allow partial early payments to either reduce your loan term or lower your monthly payments. While most modern agreements are flexible, some older contracts or specialist finance products may have limitations that affect your ability to pay off the loan early.
Choosing the Right Vehicle Finance Option
Selecting the most suitable finance option requires careful consideration of your personal circumstances, driving habits, and financial goals.
Choose hire purchase if you want guaranteed ownership and plan to keep the car beyond five years. This option suits drivers who cover high annual mileage or prefer the security of owning an asset, despite higher monthly payments compared to PCP.
Select personal contract purchase for lower payments if you typically change cars every 2-4 years or prefer driving the latest models. PCP works well if you’re comfortable with mileage restrictions and maintain vehicles in good condition.
Personal loans suit buyers wanting immediate ownership or those purchasing from private sellers who don’t offer finance options. This route provides maximum flexibility but typically costs more in interest compared to secured lending options.
Factor in all associated costs alongside your finance payments, including insurance premiums, road tax, fuel consumption, and expected maintenance costs. Some vehicles depreciate faster than others, affecting their suitability for different finance types.
Consider your future plans when making this decision. If you’re likely to need a larger car for a growing family, or if your income might change, choose a finance option that provides appropriate flexibility for your evolving needs.
The best approach involves getting quotes for different finance types and comparing the total cost over your intended ownership period. Don’t focus solely on monthly payments, consider the total amount you’ll pay and what you’ll own at the end of the agreement.
Whether you’re financing a new or used car, taking time to understand your options and shop around for the best deal will save you money and ensure you choose the right finance plan for your specific situation. Get in touch with our experts to find the best vehicle finance deal for your needs!
What We Do
Tailored commercial finance, supporting the growth of your business.
We help UK businesses access fast, flexible funding through a range of solutions including Business Loans, Equipment Finance, Invoice Finance and Vehicle Finance.
Equipment Finance
If you are ooking to make new equipment or machinery purchases but don't want to damage your cash position then equipment finance is for you. Purchase the equipment your business needs and spread the repayments over a flexible term.
Business Loans
Get a cash injection for your business and use the funds for any business related purpose, like PAYE, VAT or even corporation tax. You can spread your repayments over 1 - 6 years and if you settle your loan early, the remaining interest is wiped.
Vehicle Finance
Purchase new or used commercial vehicles on finance with The Business Finance Group. Get rates cheaper than the dealership and have your finance approved within 24 hours.
Debt Consolidation
Consolidate your finance agreements into one, making your monthly repayments easier to manage whilst achieving a better interest rate.
Invoice Finance
Are unpaid invoices damaging your cash position? Invoice finance can not only improve your cash position but take the stress away from running your business. Especially if your customers are on 60/90 day payment terms.
Asset Finance
Looking to invest in business-critical assets without draining your cash reserves? Asset finance lets you acquire vehicles, equipment or technology by spreading the cost over time, whether you’re expanding your fleet, upgrading IT systems or investing in machinery.
Frequently asked questions
What is vehicle finance and how does it work in the UK?
Vehicle finance in the UK allows individuals to spread the cost of purchasing a new or used car over a set period through monthly payments, instead of paying the full amount upfront. This makes car ownership more accessible, especially as vehicle prices continue to rise.
The process begins with selecting a vehicle and determining how much you can afford as a deposit. A lender then provides the remaining amount needed to purchase the car, which you repay in monthly instalments over an agreed term, usually 1 to 5 years. Interest is added to the repayments, and the exact amount depends on the Annual Percentage Rate (APR), your credit rating, and the type of finance agreement you choose.
There are different types of car finance in the UK, including Hire Purchase (HP), Personal Contract Purchase (PCP), and personal loans. Each has unique features around ownership, monthly cost, and flexibility. For example, HP leads to ownership after the last payment, while PCP offers lower monthly payments but includes a large optional payment at the end if you want to keep the car.
At The Business Finance Group, we simplify the vehicle finance process by helping you compare deals, apply for funding, and get behind the wheel faster, all with expert guidance and no confusing jargon.
What’s the difference between Hire Purchase (HP) and Personal Contract Purchase (PCP)?
Hire Purchase (HP) and Personal Contract Purchase (PCP) are the two most popular forms of car finance in the UK, but they work very differently:
Hire Purchase (HP):
You pay a deposit (usually 10%) and then make monthly payments to cover the remaining value of the car.
Once you’ve completed all payments (and paid a small “Option to Purchase” fee), you own the car outright.
There are no mileage restrictions, making HP ideal for high-mileage drivers or those who want long-term ownership.
Monthly payments are generally higher than PCP, since you’re financing the entire vehicle value.
Personal Contract Purchase (PCP):
You pay a deposit, followed by lower monthly payments, because you’re only financing the depreciation of the car, not the full price.
At the end of the agreement, you can either:
Return the car,
Pay the balloon payment to own it, or
Part-exchange it for a new vehicle.
PCP often includes mileage limits and wear-and-tear guidelines, with charges if exceeded.
It’s ideal for drivers who like changing cars every few years and want lower monthly payments.
At The Business Finance Group, we help you decide which option is right based on your budget, mileage needs, and ownership goals. We compare both types of finance to find the best fit for you.
Can I get vehicle finance with bad credit in the UK?
Yes, it is possible to get vehicle finance in the UK even if you have bad credit, but there are important factors to consider. Many lenders offer bad credit car finance products designed specifically for applicants with low credit scores or past financial difficulties such as defaults, CCJs, or bankruptcy.
However, there are trade-offs:
Interest rates will typically be higher than standard finance deals.
You may need to provide a larger deposit to reduce the lender’s risk.
The choice of vehicle or lender may be more limited depending on your affordability checks.
To improve your chances of approval, ensure you:
Have a stable income and address history.
Reduce any existing debt or overdrafts where possible.
Provide a guarantor or consider a joint application if available.
At The Business Finance Group, we work with a panel of lenders who understand that your credit score doesn’t always tell the full story. We’ll help you explore your options, match you with suitable lenders, and find a solution that fits your circumstances, even if you’ve been refused elsewhere.
How much deposit do I need for car finance in the UK?
Most UK vehicle finance deals require a deposit of 5% to 20% of the car’s purchase price, although the exact amount varies depending on the lender, your credit profile, and the type of finance.
Here’s how your deposit impacts the finance agreement:
A larger deposit usually leads to lower monthly repayments and could give you access to better interest rates.
A smaller deposit, or even zero-deposit car finance, may still be available, particularly if you have good credit or are buying a lower-priced vehicle.
You can also use a part-exchange vehicle to form all or part of your deposit. The equity in your current car is deducted from the total amount you need to borrow, reducing your overall finance cost.
At The Business Finance Group, we help you explore all deposit options, whether you’re putting down cash, trading in your old vehicle, or looking for a no-deposit deal. Our experts will structure your agreement in a way that suits your budget and financial goals.
Is it better to finance a car or buy one outright in the UK?
The decision between financing a car or buying one outright depends on your financial situation, lifestyle preferences, and long-term goals.
Buying a car outright:
Means you own the vehicle immediately, with no monthly payments or interest costs.
Can save you money in the long run, but requires a large upfront payment.
You’re free to sell, modify, or drive as much as you like, with no contractual restrictions.
Suitable for people with substantial savings who want full ownership and minimal ongoing costs.
Financing a car:
Lets you drive the vehicle without needing to pay the full amount upfront.
Spreads the cost into affordable monthly payments, ideal if you want to preserve savings or manage cash flow.
You may be able to access newer or higher-spec vehicles than you could otherwise afford.
Offers more flexibility, especially with PCP, where you can change cars every few years.
At The Business Finance Group, we guide you through both options and provide clear comparisons. Our aim is to help you make an informed decision based on what works best for your finances, not just what’s cheapest on paper. Whether you want to own the vehicle or just enjoy it for a few years, we’ll find a solution that matches your lifestyle and goals.
Facts & Figures
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We have access to the whole lending market.
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About Us
Tailored Funding, to Support Business Growth
Our team have a passion for helping business owners thrive, grow and achieve their dreams. At The Business Finance Group we make the experience of obtaining finance stress-free, taking care of the whole application process so that you can do what you do best, run your business. Our finance solutions are designed to assist in the growth of your company, for both the short term and long term.
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