Paying in cash for your new car is often the cheapest way to get behind the wheel, as there’s no added interest to pay - though promotional 0% APR deals and manufacturer deposit contributions can occasionally make finance just as cheap, or cheaper. But if you don’t have enough saved up, using finance helps you spread the cost into monthly instalments instead.

Arranging your car finance before you hit the dealership gives you more control over your deal and more choice about where you buy your car from. At ClearScore, we search a range of lenders and show you an eligibility score for each deal, which may indicate how likely a lender is to accept you. ClearScore is a credit broker, not a lender. So you can compare deals without the added pressure of the showroom.

Here’s how the process of getting your own finance works, and the reasons why you might want to go down this road (pun fully intended).

Decide how much you want to borrow

The first thing to decide is how much you want to borrow.

It might be that you know the kind of car you’re looking for tends to cost around £12,000, or maybe you know you can spend £300 each month.

With most car finance options, if you have some money to put towards a car you can also use that to lower the amount you have to borrow. Be realistic about what you can afford, never borrow more than you can pay back each month.

Once you’ve decided how much you might need to borrow, you’ll see that there are two options:

How much will your car finance cost each month?

Your monthly repayment depends on three things: how much you borrow, how long you spread it over, and the APR you're offered. As a rough guide, borrowing £10,000 over five years at 6.5% APR works out at around £195 a month, while £30,000 over the same term is closer to £586. The table below shows worked examples so you can see how the numbers stack up before you apply.

These figures are illustrative examples only - your own repayment will depend on the deal you're offered.

How the term length changes your payment

Stretching the term lowers the monthly figure but raises the total cost. Borrowing £10,000 over three years costs about £306 a month and roughly £1,016 in interest. Take the same £10,000 over five years and the monthly payment drops to about £195 - but you pay around £1,703 in interest, roughly £690 more for the privilege of a smaller monthly bill. Picking the shortest term you can comfortably afford, rather than the lowest monthly payment you can find, keeps the total cost down.

How a deposit or part-exchange changes the figures

Every pound of deposit is a pound you don't borrow or pay interest on. If the car costs £15,000 and you put down £3,000 - in cash or as a part-exchange - you're only financing £12,000. At 9.9% APR over 48 months that takes the monthly payment from roughly £378 down to about £302, and cuts total interest by around £620. Larger deposits can also unlock lower rates, because the lender is taking on less risk.

Why your APR depends on your credit score

Advertised rates are representative APRs, which under the FCA's consumer credit rules means the lender reasonably expects at least 51% of the agreements it goes on to make to be at or below that rate. The rest can be offered more. A strong credit score tends to attract rates at the lower end of the range, while a thinner or more troubled credit history usually means a higher one. That's why £30,000 over 60 months can cost around £586 a month at 6.5% but roughly £719 a month at 15.9% - the rate matters as much as the amount.

Working backwards from your monthly budget

If you know what you can afford each month, you can work out roughly what that buys you. Over 60 months at around 10% APR:

£200 a month - around £9,400 of borrowing

£300 a month - around £14,100 of borrowing

£400 a month - around £18,800 of borrowing

Remember to budget for insurance, road tax, fuel, servicing and MOT on top. A £300 monthly repayment on a car that costs another £150 a month to run is really a £450 commitment. When you check your car finance options you'll see an eligibility score alongside each deal, so you can see how likely you are to be accepted before you apply, subject to the lender's own checks.

1. Personal loan

A personal loan is often the cheapest way to use finance for a vehicle, especially if you have a high credit score. You also get to choose how long the loan lasts, so you could opt for a longer loan with lower monthly repayments (although you're likely to end up paying more interest overall).

When you check your car finance options in your ClearScore account, you'll see an eligibility score before you apply, so you can be more confident of any application you decide to make, though acceptance still depends on the lender's own checks.

If your loan gets approved, the loan provider will deposit the money into your account. Then you can go and buy your car from wherever you want. Using an unsecured personal loan, the car becomes yours straight away because the debt sits separately from the vehicle. But this does mean that if you can’t keep up the repayments, you can’t just hand the car back and walk away.

2. Specialised car finance

Specialist car finance plans are credit agreements designed especially for buying cars. These plans are offered by a range of lenders and may be an option if you have a less-than-perfect credit score. With these finance plans, it’s likely you’ll need a deposit (or a car to part-exchange with). The size of the deposit varies depending on your finance agreement.

There are three types of specialised car finance: hire purchase and personal contract purchase (PCP), which are credit agreements that can lead to you owning the car, plus personal contract hire (PCH), which is a long-term rental or lease rather than a route to ownership. You can find out the differences between them in our guide to car finance.

At ClearScore, we work with a range of lenders to show you specialised car finance deals from as little as 6.5% APR. We'll also connect you with specialist brokers who can help you compare types of car finance based on your budget and needs. This means there are often options worth exploring even if you’ve been rejected for car finance elsewhere, although every application is subject to the lender's affordability and creditworthiness checks and acceptance can never be guaranteed.

You can get this kind of finance directly from the car dealer. While this may seem convenient, it could leave you with an unsuitable option.

If the thought of arranging your own finance seems daunting at first, don't worry. In reality, it's much easier than it sounds.

Three simple steps and you're behind the wheel:

After you click apply on your chosen deal, you’ll be asked to fill out a few extra details to help the lender assess your application. The lender will then carry out its creditworthiness and affordability checks and, if your application is approved, give you a call to discuss the terms of the finance and the rate you’ll receive.

After this, it’s time for the fun bit - finding your car. Most car brokers have a list of thousands of verified dealerships to choose from. This means you can get a car from a wide range of dealers, rather than being limited to the dealer with the 'best' finance. If you’re not sure what car you want, the car finance broker will even be able to help you search for options suitable to your lifestyle and budget. Sometimes, they can even set up test drives for you.

Once you’ve chosen the car, the finance broker will sort everything out. They’ll carry out some history checks on the car to check all is a-okay. They sort the admin, the paperwork, and the negotiations with the dealer. Once everything is finalised you just have to pick up the keys and drive away.

Ready to see your car finance options?See your offers now. Always make sure you can afford repayments.

What stops you from getting car finance?

Most declines come down to affordability or recent payment problems rather than your score alone. Lenders are checking whether you can realistically meet the repayments and whether your recent track record suggests you will. Here are the most common reasons applications get turned down, and what you can do about each one.

Affordability, not just your score. Lenders compare your income against your existing commitments - rent or mortgage, other credit, childcare, utilities. If the new repayment would stretch you too thin, a good score won't rescue the application. Clearing a credit card or reducing an overdraft before you apply does more than almost anything else here.

Recent missed payments, defaults, CCJs or an IVA. A missed payment in the last few months is a far bigger red flag than a default from four years ago. Defaults and county court judgments stay on your file for six years, and an active IVA or bankruptcy will rule out most mainstream lenders. Six clean months of on-time payments can improve how your file reads.

A thin credit file or no UK credit history. If you've never borrowed, lenders have nothing to assess, and "no evidence" is treated cautiously rather than generously. This catches out younger applicants and people new to the UK. Building history with a credit-builder card used for small purchases and repaid in full each month usually starts to strengthen your file over six to twelve months, though there's no guaranteed timeline.

Address and electoral roll mismatches. If your name and address don't match the electoral roll or your existing credit accounts, automated identity checks can fail before anyone assesses your creditworthiness. Register to vote at your current address and update the address on every account you hold - it's free, although it can take up to around 30 days for the electoral roll update to appear on your credit file.

Too many recent credit applications. Several hard searches in a short window looks like you're being declined repeatedly or scrambling for cash. Space applications out and use eligibility checks, which run a soft search that doesn't affect your score, to narrow the field before you formally apply.

Age, employment status and licence restrictions. Many lenders require you to be at least 18 (some 21), hold a full UK driving licence, and have been resident in the UK for three years or more. Self-employed, zero-hours and probationary-period applicants are often asked for extra proof of income - having two to three years of accounts or recent payslips ready can help avoid a decline on paperwork grounds.

Borrowing too much relative to the car or your deposit. Asking to finance 100% of an expensive car with no deposit puts the lender in a weak position if things go wrong. Adding a deposit, part-exchanging an existing car, or simply choosing a cheaper vehicle can turn a decline into an approval at a better rate.

Errors on your credit report. Accounts that aren't yours, a settled debt still showing as outstanding, or a duplicate record can all trigger a refusal. Check your report, raise a dispute with the lender and the credit reference agency, and allow up to 28 days for a correction.

What to do if you've been declined

Don't immediately apply somewhere else - each new hard search compounds the problem. Ask the lender for the main reason for the decision, check your credit report for anything you can fix, and wait around three to six months before reapplying so your file has time to settle and improve. In the meantime, build a larger deposit, keep every payment on time, and use eligibility checks to see which lenders are realistically likely to say yes. Because ClearScore searches a range of lenders and connects you with specialist brokers, there are often options available even after a refusal elsewhere.

What is the 50% rule in car finance?

The 50% rule - properly called voluntary termination - is a legal right under section 99 of the Consumer Credit Act 1974 that lets you give notice at any time before the final instalment falls due and hand the car back. The half-way figure comes from section 100: your liability is capped at half of the total amount payable, so if you've already paid that much there's usually nothing more to find. It's one of the key differences between specialised car finance and a personal loan, and it exists whether or not your lender mentions it.

Under voluntary termination you give the lender written notice, return the car in reasonable condition, and the agreement ends. Once your liability is settled you owe nothing further on the finance even if the car is now worth less than the balance, but any arrears or unpaid instalments built up before termination are still payable, and excess mileage or damage charges may also apply. You don't get back any of the money you've already paid, and you don't keep the car - but you cap your losses at the halfway point, which can be valuable if your circumstances change or the car turns out to be a mistake.

What counts towards the 50%

The threshold is half of the total amount payable, not half of the cash price of the car. That total includes your deposit, all monthly repayments, interest, any documentation or option-to-purchase fees and - crucially on a PCP - the optional final balloon payment. Because the balloon payment is often a large chunk of a PCP, the halfway point can arrive much later than you'd expect, sometimes with only a handful of monthly payments left to make. Your agreement should state the total amount payable; your lender must tell you exactly how much you'd need to have paid, and you can make up any shortfall in a lump sum and terminate immediately.

The half rule and the third rule are not the same thing

These two protections get confused constantly. The half rule is about your right to voluntarily end the agreement. The third rule is about what the lender can do to you if you fall behind on payments: under section 90 of the Consumer Credit Act 1974, once you've paid a third or more of the total amount payable on a regulated hire purchase or PCP agreement, the car becomes "protected goods" and the lender cannot repossess it without a court order. Paying a third doesn't give you the right to hand the car back, and paying a half doesn't stop a court-ordered repossession - they're separate rights with separate triggers.

Which agreements it applies to

Voluntary termination applies to regulated hire purchase and personal contract purchase (PCP) agreements, because in both cases the finance company owns the car until the end of the term. It does not apply to a personal loan, where the car is yours from day one and the debt is separate from the vehicle - you'd still owe the loan in full even if you sold the car. Personal contract hire (PCH) is a lease rather than a credit agreement, so it isn't covered either; ending a PCH early usually means paying an early termination fee instead.

What it does to your credit file

Voluntary termination is a contractual right, not a default, so exercising it correctly should not damage your score in the way a missed payment or repossession would. The agreement is usually marked as terminated or settled early rather than satisfied in full. Some lenders note it on your file, and a small number take a dim view of it when assessing future applications from the same group - but it's a world away from letting the agreement fall into arrears.

Damage, mileage and condition charges

You're required to return the car in reasonable condition, allowing for fair wear and tear over the time you've had it. Lenders can bill you for damage beyond that - kerbed alloys, dents, torn upholstery, missing service history or a missing second key. Excess mileage charges can also apply on a PCP if you've gone beyond the agreed annual limit. Photograph the car thoroughly before handover, keep the service record up to date, and fix cheap cosmetic issues yourself rather than paying a lender's rates for them.

Can you get car finance with a lower credit score?

It's possible. Car finance is secured against the vehicle itself with hire purchase and PCP agreements, which means lenders have more protection than they do with an unsecured loan - and that makes them more willing to lend to people with imperfect credit. You'll typically pay a higher APR and may need a larger deposit, and approval depends on your credit score and other factors lenders consider - such as your income, existing borrowing, and whether repayments are affordable.

What counts as a lower credit score in the UK?

UK scores work differently from the American 300-850 system, so a "500 credit score" doesn't translate directly. ClearScore is not a credit reference agency, but we do give you your credit score and report for free using data from Equifax. Your score runs from 0 to 1,000, split into five bands: poor (0-438), fair (439-530), good (531-670), very good (671-810) and excellent (811-1,000). Experian and TransUnion use different scales again, so the same credit history can look like a very different number depending on where you check it. Credit reference agencies collect and hold information about how you've managed credit, and lenders use their own criteria and may score you differently, so the score a lender sees may not match the one you see on ClearScore.

Can I get car finance with a very low credit score?

It's possible, but your options narrow. Below around 439 on the Equifax scale you'll generally be looking at specialist subprime lenders rather than mainstream banks, with APRs that can run from the high teens into the 30s or beyond. A deposit of 10-20% and evidence of stable income make a significant difference. At ClearScore we also connect you with specialist brokers who work with lenders that assess the whole picture rather than just the score - which is why it's often still worth looking even if you've been declined elsewhere.

Is there a minimum credit score for car finance?

No. There's no universal cut-off, because every lender sets its own criteria and weighs your score alongside your income, outgoings, employment status and recent payment history. A fair score with clean recent conduct and comfortable affordability can beat a slightly higher score with a recent missed payment on it.

What interest rate should I expect with a low score?

As a broad guide: excellent and good scores tend to see rates from around 6.5% APR upwards; fair scores often land somewhere in the 10-20% range; and poor or very poor scores commonly see 20% or more. On £12,000 over four years, the difference between 7% and 25% APR is roughly £90 a month and over £4,500 in extra interest - so it's worth knowing where you stand before you commit.

Does a guarantor or a bigger deposit improve my chances?

Both help. A larger deposit reduces the amount at risk for the lender and lowers your loan-to-value ratio, which can move you into a better rate bracket. A guarantor - someone with stronger credit who agrees to cover repayments if you can't - may make approval possible where it otherwise wouldn't be, although the lender's own checks still apply and a guarantor takes on a real legal liability, so it should never be arranged casually.

Will checking my car finance options hurt my credit score?

No. Checking your eligibility in your ClearScore account uses a soft search, which only you can see and which has no effect on your score. Only a full application creates a hard search visible to other lenders. That's exactly why it's worth checking your eligibility score first rather than firing off applications and hoping - several hard searches in quick succession can make you look desperate for credit.

Should I improve my score first, or apply now?

If you don't need a car urgently, a few months of groundwork can pay for itself many times over in lower interest. Registering on the electoral roll, paying every bill on time, bringing credit card balances below 30% of their limits and avoiding new applications in the run-up can all help. If you need the car now, the alternative is applying with a realistic budget and a decent deposit, keeping every payment on time, and looking at refinancing once your score has recovered.