The ultimate checklist for financing your next car
Thinking about financing your next car? Whether it’s your first time or you’ve done it before, it’s worth reminding yourself of the things you need to factor in and prepare for when you start your search.
Car finance can seem complicated, but it doesn't need to be. We’ve created this simple checklist as a guide to help you understand your options, plan ahead and make sure your deal works for your circumstances.
1. Set a realistic budget
Before you start falling in love with a car, work out what you can realistically afford. This doesn’t just mean the monthly finance payment; it’s really important to remember all the other costs too, like insurance, fuel and road tax.
A popular rule of thumb can be to keep your car finance payment under 15% of your monthly income, and try not to stretch yourself too thin. If you’re not sure what kind of figure that looks like, use our free online car finance calculator to get a good idea of how much you could borrow and what the monthly repayments might be.
Keep in mind that the figures provided by the calculator are estimates, and the actual amount may differ based on your credit score and financial circumstances. Always review your options thoroughly before committing.
2. Check your credit score
Your credit score could have a big impact on the kind of finance deals you’ll be offered. A stronger score can often mean better interest rates and more choice when it comes to lenders. On the flip side, a bad credit history may result in higher interest rates or less favourable terms.
Look out for any mistakes, outdated information or missed payments on your credit profile. If there’s time before you apply, it might be worth working on your credit and improving your credit score where you can. This might be paying off small debts, or registering on the electoral roll.
But if your credit isn’t perfect, we could help. At Car Finance 247, we work with specialised lenders who offer bad credit car finance and might be able to offer you a deal that works for you, even if you’ve struggled with bad credit in the past. Credit is subject to status.
3. Decide what kind of finance is right for you
Not all car finance is the same. The best option depends on your personal situation, how often you like to change cars, and whether you want to own the car at the end of your agreement.
Here are the main types of car finance:
Hire Purchase (HP): With HP, you may or may not pay a deposit, then monthly payments, including interest. Once the final payment has been made, the car’s yours.
Personal Contract Purchase (PCP): You might pay a deposit and monthly instalments, then choose to either return the car, trade it in, or pay a final balloon payment to own it.
Personal Contract Hire (PCH): This is basically a long-term rental. You pay an initial payment followed by fixed monthly rentals, and at the end of the agreement, you hand the car back.
The right choice for you will depend on how much you can afford to pay monthly and whether or not you want to keep the car at the end.
Note: Different types of finance come with varying levels of risk and responsibility. Always read the terms and conditions carefully before proceeding with any agreement.
4. Decide whether to go for a new or used car
One of the first choices you'll need to make is whether to finance a brand-new car or go for a used one. Each option comes with its own pros and cons, especially when it comes to finance.
Although we don’t currently offer car finance on new cars at Car Finance 247, a new car offers the latest technology, features, and sometimes a full warranty. But, they can depreciate quickly, especially in the first few years. On the other hand, a used car tends to be more affordable upfront and may already have some depreciation factored in, meaning it could hold its value better over time.
But, the condition of a used car is a crucial factor. While you may get a better deal, there could be a risk of hidden issues or higher maintenance costs depending on the age and mileage of the car.
The best choice for you depends on your budget, how long you plan to keep the car, and how much value you place on having the latest features.
5. Research and compare car models
Now the fun part: choosing your car! While this is the best bit, make sure you don’t rush your decision. Think about whether the car you go for suits your lifestyle, your budget, and your needs, and read up about their features before you commit.
Will you need a family car in the near future? Will you be opting for fuel, a hybrid or going green with an EV? These are all the options you need to consider.
If you’re opting for a used car, always check the car’s condition and history carefully, so you have the full picture.
6. Compare lenders and rates
Not all car finance deals are the same. Different lenders offer different interest rates, terms, and fees, so it’s worth shopping around before making a decision. Even a small difference in the interest rate can make a big impact on what you end up paying overall.
It’s also important to make sure you understand the total cost of the loan, and you’ve factored in the interest, fees and any additional payments into your budget.
It could also be a good idea to check if the rate is fixed or variable, so you’re clear on how your payments might change over time.
7. Gather your documents
When you’re ready to apply for car finance, you’ll need a few things to hand. Lenders may ask for:
Your full name
Date of birth
Proof of address (like a utility bill or bank statement)
Proof of income (such as payslips or bank statements)
Bank details
A valid UK driving licence
Keep in mind, the exact documents can vary depending on the lender. But having everything ready to go could help speed up the process. Your lender may also ask for additional documents depending on their internal requirements, so always check in advance.
Read our full guide on what documents you need for car finance to find out more!
8. Read the small print
Before signing anything, take the time to read through the agreement carefully. Check the interest rate and total amount repayable, the length of the agreement, and any fees or early repayment charges.
If you're on a PCP agreement, make sure to note the mileage limits, and understand what happens if you miss a payment to avoid any surprises down the line. Being thorough with these details ensures you're fully aware of your obligations and the potential costs involved. If anything doesn’t make sense, ask!
Remember: Always read the agreement carefully to understand your rights and obligations before signing anything.
9. Final checks before you drive away
Once your finance is approved and you’re ready to pick up your car, it’s important to do a thorough final inspection, especially if you’re buying a used car. While you may have checked the car out earlier, take a moment to go over everything one last time to ensure everything is as described.
If the car’s used, ask for the V5C logbook to make sure the details match the car you're purchasing, and that it has been properly registered with the DVLA. You should also ask for a full service history to see how well it's been maintained, and the MOT certificate. If it's close to expiry, you might be able to negotiate a lower price with the seller, so it’s worth asking!
We believe financing a car shouldn’t have to be stressful. By following this car finance checklist, you can break the process down into manageable steps, helping you choose the best deal you're eligible for depending on your needs and budget.
Just remember: take your time, compare deals, and double-check everything before signing. There’s no need to rush into anything without careful consideration. Thinking about it now could save you regret in the long run.
Disclaimer: The information in this guide is intended as a general overview and should not be considered as financial advice. Car Finance 247 is not responsible for any decisions made based on this guide. All finance applications are subject to approval, and the actual terms of any finance agreement may vary based on individual circumstances. Rates, terms, and eligibility depend on your credit profile and the lender’s criteria. Always read the full terms and conditions before proceeding with any finance agreement. If in doubt, consult with a financial advisor to ensure the finance option you choose is suitable for your situation.