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. 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!

The fact that the loan is unsecured means you’re not borrowing the money against the value of one of your possessions. So if it turns out that you can’t meet your monthly repayments, the lender can’t repossess your car or home.

Homeowner loan

A homeowner loan is secured against a property. Therefore, to be eligible for a homeowner loan you will need to be a homeowner, have an existing mortgage in place and have some equity in your property.

As the loan is secured, the lender could repossess your home if you have problems paying back the debt.

Homeowner loans can be an option to consider if you do not have a perfect credit history, as typically the fact that it is secured should allow you to access better interest rates.

Carbon are looking to offer these products in the coming months. What this space!

Buying a car?

If you are looking to buy a car then there are many types of finance to consider. It can feel like a minefield trying to understand the best product as a consumer and 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

This type of product is explained above and is one option when buying a car with finance. If you have an excellent credit history, an unsecured loan could well be your cheapest overall option.

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. Similar 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.

If you are looking to buy your next car from a car dealership (as opposed to a private seller) then often you will be able to trade-in your current car. Only the dealership can provide you with the actual trade-in value they are prepared to offer and this can be affected by many factors including the car's mileage, condition (interior and exterior) and MOT & service history. However, if you are after a guide we can provide you with one as part of our main service (click “Get a quote” to start this process). Please note that this will be an estimate and we are not liable for any loss or damages relating to your reliance on it.