What Checks are Done for Car Finance?

A man opening the door of a new car

Applying for car finance might seem like a long, drawn-out process, and while there are certainly several car finance checks that you’ll need to carry out, it shouldn’t take you too long once you know the best ways to get approved for car finance, as well as the best car finance companies.

How do I finance a car in the UK?

In order to finance a car in the UK, there are several methods to go about doing so, including personal contract purchase (PCP), personal contract hire (PCH), hire purchase (HP) and personal car loan.

Personal contract purchase

Financing a car through personal contract purchase (PCP) requires you to put down a deposit of at least 10% of the car’s value. You will then have to make monthly repayments for approximately three to five years, when you will then be given three choices:

  • Purchase the car outright with a balloon payment
  • Exchange the car for newer model
  • Walk away from the contract

Generally, this is the most popular way to finance a car as it offers the most flexibility at the end of the contract.

Personal contract hire

Personal contract hire (PCH) is also known as one of the simplest and most common types of car leasing methods and it is essentially just like renting a car.

You’ll have to pay an upfront deposit and monthly payments for the duration of your car lease. The main difference between this option and personal contract purchase is that you don’t have the option to buy the car at the end of the lease period.

Hire purchase

This type of car finance involves paying a deposit (usually 10%) and then paying monthly installments with added interest over the course of one to five years. At the end of the period, you can pay a transfer fee in order to take ownership of the car.

Personal car loan

Getting a car on finance with a personal loan involves borrowing a fixed lump sum in order to ‘buy’ the car and then paying it back in monthly installments with added interest.

Learn more: 7 Things to Know Before Getting a Personal Loan

Do I need a credit check for car finance?

It largely depends on the method you choose for financing your car, as well as the company you choose to finance your car with, whether or not you’ll be subject to a credit check.

Most car finance companies will carry out a credit check on your financial history to see if you’re eligible to pay the money back that you borrow and whether you’re a reliable person to lend money to.

However, even if your credit score isn’t looking too great, some companies will still accept you for car finance; it’s always worth shopping around to check.

Check your score with multi-agency credit checking website Checkmyfile by tapping the button below to sign up to a FREE 30-day trial. After your free trial, £14.99 applies per month, but you can cancel anytime:

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What do I need to get car finance?

When car finance companies carry out a car finance check on you, they’ll likely want to know numerous personal details about you so that they can do a full background check as well as a car finance credit check on you.

Some of the things you might have to provide the car finance company with include:

  • Proof of identity and personal details
  • Driver’s license
  • Income source/s and proof
  • Your credit score
  • Address and history of previous addresses
  • Employment details and history of employment

Read more: The Best Sites to Get a Free Credit Score and Report

How long do credit checks take?

The length of time that it takes to carry out a credit check depends on numerous different things; most notably the car finance company you opt for.

Some money lenders can carry out a credit check on you in as little as five seconds, whereas some companies can take days at a time.

If you really want to make sure that your credit check is carried out well in advance before you commit to getting a car on finance, we recommend giving yourself at least 2 to 10 days in order for all the necessary checks to be carried out.

What is a good APR for car finance UK?

Naturally, the lower the APR, the better, as it means you don’t have to pay anything back with regards to interest. An APR of 0% would be ideal, but that could also mean that the car you’re taking out on finance could be very overpriced in order for the lender to be able to afford to not charge APR.

Ideally, you will be looking at an APR of anywhere between 5% and 11%, but it will likely fluctuate massively depending on the company you’re financing your car with.

Is it a bad idea to get a car on finance?

Some people would argue that it’s not a good idea to get a car on finance, especially if you have bad credit as it will likely only add to the repayments you need to make. Getting a car on finance as opposed to buying it outright also means that the car doesn’t actually belong to you unless you come to the end of your leasing contract and decide to purchase it.

On the other hand, getting a car on finance is a good idea if you’re unable to pay a lump sum payment to purchase a car, but you really need a vehicle. It can also be a good idea to get a car on finance, even just for a short amount of time, in order to see whether you would actually like to buy the car or not.

Putting a huge payment down in order to fully purchase a car is something that not many people can afford to do, so car finance is a good way to try out a new car and spread the costs over many months.

You might like: How to Improve Your Credit Score

Best car finance deals

Finding the best car finance deal for you can be a time-consuming process, especially when you take into account all the personal and credit checks that will need to be carried out, but it’s definitely worth shopping around to find the best deal for you.

The checks that will be carried out on you as part of your application for car finance shouldn’t be too much of a hassle, but the process can sometimes be a little slower if you’re not upfront and honest right away, so be sure to always give as much truthful information about yourself and your credit situation when applying for car finance.

If you're unsure what your credit score is and want to know more about the information held by credit reference agencies (CRAs) about you, tap the button below to visit Checkmyfile's website.

Starting off, you'll be entitled to a 30-day free trial period, but you'll be charged after that - just be sure to cancel your subcription if you don't want to pay. While there is a monthly fee of £14.99, it is one of the best sites for checking your score as it provides information about your credit history from the main four CRAs in the UK, meaning you will get a much more detailed report and you'll be able to spot anything that may be holding you back from securing the best finance deals on the market. Tap the button below to start your free trial:

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