Car finance explained

When buying a car you need to decide whether to use savings, or get some form of finance. Using savings is often the cheapest way to purchase a car so it's likely a good decision if you can. However, many of us aren't in a position to buy a car outright, so finance is often a great option.

There are many types of finance so it can feel like a minefield trying to understand the best product as a consumer. Furthermore, the most suitable option differs from person to person depending on your credit history, the value or details of the car you're looking to buy, as well as your personal circumstances or goals.

At Carbon, we look at a range of products tailored to your circumstances, to try and help you save money when buying your next car. The products we compare are explained below:

Unsecured loan

Also known as a personal loan or a bank loan.

These products can offer great flexibility as if you are approved a lender will pay the money straight into your bank account and you can use it for any purpose. For example, you can use the money towards a new car, as well as for insuring or taxing it. This also means you can buy a car from anywhere and not just a car dealership, for example from someone who is selling their car privately.

However, depending on your circumstances (for example if you have a poor credit history) you may not be eligible to get the best interest rates. Luckily, you can use the Carbon service to see what interest rates you can get!

Credit card

You may be able to buy a car using a credit card in certain circumstances and by doing so you may benefit from extra protection if anything goes wrong with it. Also, if you have a credit card (or you can get one) that has a 0% introductory interest rate for purchases, it could be a very cheap way of financing the car. But be mindful, as you could get caught out with a credit card balance and high interest rate if your introductory offer ends before you pay off the debt.

Typically only car dealerships will accept this form of payment and they may have limits on the amount you can spend on a credit card.

If you would like to know more about how a credit card could provide you with extra protection we recommend you research the relevant UK legislation, which is Section 75 of the 1974 Consumer Credit Act.

Carbon are looking to offer these products in the coming months – watch this space!

Hire purchase / conditional sale

Hire purchase and conditional sale products are similar. They are both secured against the car you buy. You will be the registered keeper of the car, however, the finance provider will own the car until you make the final payment at which point it's yours. If you don't keep up with the repayments your car can be taken away from you. As the finance provider has some security, they are typically able to offer you cheaper interest rates when compared to an unsecured loan, so depending on your circumstances (for example if you have a poor credit history) they can be a good option to consider.

Personal contract purchase

Also known as PCP. Similarly to hire purchase the lender has security in the form of the car, so if you don't keep up with repayments the lender can take it away.

With PCP finance, you only pay down the expected depreciation of the car. At the end of the agreement you can then decide whether to make a final payment (often referred to as a balloon payment) to keep the car, or you can hand it back.

This product has grown in popularity as it means monthly payments can be substantially lower. However, you will end up paying more interest and don't have a car at the end of the agreement without paying the final payment, so think carefully before using this lending product.

FAQs

If you're over 18, live in the UK and looking to understand how you could buy a used car on finance, then our service is for you. Whether you know the exact car you're looking to buy, or just have a rough spending budget in mind, we can check for products personalised to you.

Car finance comes in many forms, but put simply – it's any finance that allows you to buy a car. Please visit our car finance explained page for further details.

Whether you're eligible for car finance depends on the car you're looking to buy, your credit history and your financial position. There's lots of things to consider. Luckily, at Carbon we've developed a way of you checking what products you're eligible for in just a few minutes. Just click 'get a quote' to get started!

Yes. All the personal information you supply us with is stored in our secure data centre in the UK. We need to share this data with the third parties we work with in order to provide our service, but when doing so we always do so in an encrypted fashion. More information regarding how we handle your personal information is included in our privacy policy.

At Carbon we work with a range of lending partners. So even if you have a poor credit history, we may be able to help. Just click 'get a quote' and complete our short form to find out if we can.

At Carbon we work with a range of lending partners. So even if you have limited credit history, we may be able to help. Just click 'get a quote' and complete our short form to find out if we can.

At Carbon we work with a range of lending partners. So even if you have recently moved to the UK, we may be able to help. Just click 'get a quote' and complete our short form to find out if we can.

That will depend on the type of finance. If you buy a car from a reputable car dealership then any finance can usually be used. However, if you're buying off a private seller, certain products (for example PCP, hire purchase and conditional sale) aren't usually available.

Annual percentage rate, or APR, is a measure of how much interest the lender is charging you for your loan. It's the yearly cost of borrowing money, factoring in any fees.

Every APR and monthly payment you see on Carbon is the actual rate you'll get if you are accepted for that deal. This may sound obvious but it's often not the case. You may have heard of Representative APRs – here a lender can advertise a certain rate, but increase that when you actually apply for the product. We never allow that to happen, this is known as using real rates.

A soft credit search (also known as a quotation search) doesn't leave a mark on your credit file that is visible to lenders, so doesn't affect your credit score. We only use soft searches, so you're in safe hands. If you decide to actually apply for credit then you'll have a hard search done, but this will be done by the lender.

On your results page you'll see your personalised chance of getting accepted for each product shown if you were to apply. This can range from 100% (you'll definitely get accepted) down to 0% (you'll definitely get declined). This is now common on many price comparison sites. We should know a thing or two about this – the team behind Carbon invented the concept of chance of acceptance (or eligibility) in our previous business.

On your results page you'll have the option to sort the results in various different ways. By default we try to show you the cheapest options that you have a good chance of being approved for.