5 Questions to Ask Before Signing a Car Finance Deal in 2025
Buying a car on finance can be a great way to spread the cost of a new car. But before you sign your agreement, it’s crucial to ask yourself some key questions first. The contract you agree to needs to work for you now and in the future.
Here are five key questions to think about before signing a car finance deal in 2025, along with tips to help you make the best decision for your situation.
What type of finance deal is right for me?
There are three main types of car finance deals:
Personal Contract Purchase (PCP): You might pay a deposit and then monthly payments, plus interest. At the end, you can either give the car back, pay a final “balloon” payment to keep it, or trade it in for a new one. People may prefer this if they want lower monthly payments and to change their car more frequently.
HP (Hire Purchase): You might pay a deposit and then monthly payments, plus interest for an agreed period of time. Once all the payments are made, you own the car. People who plan to keep the car long-term may prefer this option.
PCH (Personal Contract Hire): You lease the car for an agreed period of time, paying monthly payments, plus interest. Once the agreement is over, you don’t have the option of keeping the car; you just give it back. This could be best for people who want a new car every few years without ever owning the car.
The best option for you will depend on your finances and whether you want to own the car at the end. It’s really important to think about long term vs short term.
For example, PCP typically has lower monthly payments, but you have to pay a big sum at the end if you do want to keep the car. It’s also crucial to factor in interest when making your decision and the length of your loan agreement.
Note: Your eligibility for car finance will depend on your financial circumstances. Lenders will carry out affordability checks before offering a deal. Be sure to review your agreement carefully and ensure the finance deal is suitable for your current financial situation.
Do I want to own the car at the end?
If you’re planning to buy the car at the end of your agreement, you might want to think about if the make and model will be valuable in a few years.
This is an especially important question to consider in 2025, because of the changing rules around fuel vs electric vehicles. The UK government is planning to ban the sale of new petrol and diesel cars from 2035, which means more people will be switching to electric or hybrid cars.
The knock-on effect is that petrol and diesel vehicles might fall in value (depreciate) faster than before. EVs may depreciate more slowly, especially if you go for a newer model. But, older EVs with shorter battery life might lose value quicker.
It’s important to consider this when you’re choosing your car and your finance deal.
What’s my annual mileage?
Some finance deals, especially PCP and PCH, come with an annual mileage limit. If you go over this limit, you’ll likely have to pay extra charges.
If you commute daily, take regular road trips, or use your car for work, make sure to choose a mileage limit that aligns with your actual driving habits to avoid unexpected costs. If you’re not sure, it could be cheaper to pick a higher mileage limit at the start than to pay fees later.
What’s the total cost of the deal?
Another important factor to consider is how much the total loan will set you back. Don’t just look at the monthly payment. It could be a good idea to know:
- The deposit amount (if applicable)
- The interest rate
- Any final payment (for PCP)
- Fees for ending the deal early or missed payments
It’s important to look at the total repayable amount at the end of your agreement, as well as what you’ll be paying monthly. This will show you exactly how much the deal will cost you from start to finish, and help you work out if you can afford it long term.
Note: APR (Annual Percentage Rate) and the total amount repayable will vary depending on the lender, the type of agreement, and your credit profile. Always check the full terms of your finance offer before signing.
What happens if my situation changes?
It’s also important to know what your options are if you want to end your agreement. Life can be unpredictable, and you never know if your circumstances might change. You might lose your job, have a change in family size, or move somewhere where you don’t need a car.
It’s important to know what your options are if you need to end your finance deal early, if there are any early settlement fees if so, and if voluntary termination will be an option.
Remember: If your financial situation changes and you need to end your agreement early, you may be subject to early settlement fees. It’s important to understand the terms of voluntary termination and any associated costs before proceeding with your agreement.
The takeaway
Car finance can be a great way to get the car you want without paying the full cost upfront. But in 2025, the car market is changing quickly, especially with the shift to electric vehicles and new rules around petrol and diesel cars. Before you commit to any deal, make sure it works for your lifestyle now and your plans for the future.
Taking the time to ask the right questions could save you money, stress, and hassle down the road!
Disclaimer: This content is for general information purposes only and does not constitute financial advice. Your eligibility for finance will depend on your personal financial situation and the terms of the finance provider. Always read the terms and conditions of your agreement before signing. If you are unsure about any aspects of car finance, we recommend seeking independent financial advice.