Lifestyle Guides

Eight car finance myths busted

More and more of us are considering car finance for our next motor purchase, but what is car finance and is it right for you?


The demand for car finance is growing rapidly with a 13% increase in value for consumer car finance in February 2018 compared to 2017, according to the Finance & Leasing Association.

But many drivers don’t understand the different types of car finance options available, how and when to use them, where to access car finance, or the implications of taking out a loan.

If you're confused about car finance, we can help; we've taken a look at eight of the most common car finance myths and busted them for you.

1. You can’t pay off car finance earlier than agreed 

Not true, you are allowed to you pay off the outstanding balance in full at any time during the course of the agreement and no lender can refuse this. However as with other types of finance, this can incur some charges or penalties, so it’s best to check these before signing anything.

2. You can only get car finance from the dealer when you buy your car 

This is a myth and common misconception and could result in customers taking out a loan which isn’t necessarily the best option for them. 

Customers are free to shop around for car finance deals outside of the car dealership and get a quote without damaging their credit score before they even leave the house. 

3. Shopping around for car finance ruins your credit score 

Stick to ‘soft credit searches’ when shopping around for quotes until you’re sure the deal and provider is suited to you and you want to make a full application.

Once you go past this point you’ll incur a hard credit check against your credit profile. There is no hard and fast rule but making full applications for finance from multiple lenders within a short period of time, whether car finance or otherwise, could set alarm bells ringing for providers and impact your credit score, even if your intention was simply to shop around. 

4. PCPs are only available on new cars

This is no longer true. Whilst previously, PCP agreements were only available on new vehicles, some lenders (including Admiral Car Finance), now offer this on used vehicles too. This gives customers greater flexibility on the type of car they can buy and how they can buy it.

5. Getting car finance is slow and you’ll miss the car you want having to wait

Some traditional finance providers or car dealers might need written personal details before finding a deal for you, which could take some time. But these days you can do it all online. You could get a quote that online in less than 5 minutes and completing your application won’t take much longer.

6. With a PCP, you’ll get your deposit back at the end of the agreement 

If you decide to hand back the car at the end of the PCP, you are not entitled to any money back. However if you have paid a large deposit and the depreciation of the car has been low, the car could be worth more than the final balloon payment. In that case, you could be better off keeping the car, selling it and paying off the balloon payment. You could use the money you make doing this as a deposit on your next car.

But, that’s a lot of ‘ifs’ and ‘maybes’. Stick to your budget, understand what your balloon payment is likely to be, and only contribute a deposit you can afford.

7. You must have a deposit to get car finance  

It ultimately depends on the individual lenders and their reasoning behind it.

Deposits are usually requested to ensure that customers borrow a sensible amount in relation to the value of the car, and to reduce the chances of negative equity in the future. Any provider should give a thorough explanation, plus a list of options available to you, so you can make the choice that’s right for your circumstances. 

8. Having car finance will give you a bad credit rating

Having a car finance deal in place and making your repayments on time can actually show other lenders you could be considered a ‘low credit risk’, compared to other people with no credit.

However missed or late payments could make you appear as a higher risk to other lenders, so it’s important to choose an affordable deal and to make payments on time.