The seven deadly sins of car finance

  • Don’t be greedy: stick to agreed mileage limits to avoid charges
  • Take pride in your car: make sure you keep it in good condition
  • Don’t be slothful in paying: late payments mean additional fees

Car finance is a great way to get the model you’ve been lusting after without busting your budget. However, if you don’t understand what you’ve signed up for, you could be stung with a number of hefty additional charges along the way. 

Avoid being a glutton for punishment by asking the dealer to clarify exactly what your responsibilities are – and what you could be charged extra for  before you sign on the dotted line. 

Woman sat in car

Different charges apply to cars purchased through PCP, PCH leasing and Hire Purchase schemes. PCH and PCP plans – where you choose to return the car – are subject to additional potential levies, as the car is never yours. 

Do your homework, though, and you can take pride in a shiny new car that will make your neighbours green with envy – all for a manageable monthly payment. Find out how much you can afford to borrow with our finance tool and check out the best PCP finance deals, whatever your budget, below:

1: Exceeding the agreed mileage limit

Opt for a car on a PCP or PCH contract and you’ll have to agree a mileage limit. Exceed this and you’ll face an excess mileage charge when you hand the car back (if you choose not to purchase the car if you’re on a PCP scheme).

These vary significantly, though you will almost certainly be out of pocket by having to pay excess mileage charges on a lower-mileage contract than simply getting a pricier, higher-mileage agreement.

Speedometer showing high mileage

Charges range from around 4p per mile to more than 30p per mile, but whatever the figure, it’s worth getting a contract that allows more miles than you expect to cover. Even if you don’t cover the full amount, you’re likely to be better off paying a little more each month than having to pay a fine for just a few thousand miles.

2: Damaging the car

Car finance contracts allow for fair wear and tear, but damage the car and you can expect to be issued with a repair bill when you return it. 

Ideally, you’ll want to keep the car immaculate so that there’s nothing to pay. If you do damage the car, though, and plan to return it, you can always get a quote for getting the car repaired yourself and comparing it with what the finance company – or their nominated garage – would charge

Car workshop

Should it cost less to have the car repaired yourself, go ahead and do this. If charges from the finance company are less, however, you can hand the car back safe in the knowledge that you’re being charged a fair price. Alternatively, if you’re happy to keep the car you will face no additional charge by making the pre-agreed optional final payment on a PCP deal to take ownership. 

Bear in mind, though, that if the car is damaged, you’re likely to get a lower price for it if you sell it privately than with a pristine model. 

3: Failing to get the car serviced

Whatever car you run, you’ll need to get it serviced – whether there are set service intervals, or the car simply tells you when it needs to be looked at by a garage. Fail to do this and you could face substantial charges for neglecting your contractual obligations.

Car servicing

It’s worth double-checking with the dealer exactly how often the car needs attention and keeping an eye on whether the car flags any other issues throughout the contract.

Want to learn more about car finance? Take a look at the links below:

4: Making payments late

As with most loans, if you fail to make payments on time, you’re likely to face the wrath of the finance company – with late payment charges. These may be small in isolation, but if you’re unable to meet payments in the first place, they could quickly escalate.

To make sure that you can afford monthly payments, it’s always wise to work out what you can afford to pay each month on your car, leaving leeway should your finances get tight during the contract. 

Car showroom

Don’t get greedy when sitting down with the salesperson; they might want you to choose a top-of-the-range model with thousands’ worth of options, but don’t let them coerce you into committing to more than you can afford.

5: Failing to consider interest charges

Seeing the cost of a car split into monthly payments can make an expensive car seem affordable. However, that doesn’t necessarily make it good value. A smart way to work out how much of a premium you are being charged for the convenience of consistent monthly costs is to look at the APR interest rate and any deposit contribution discounts offered.

Many brands offer great-value zero-percent interest offers – meaning that the cost of a car is simply split across a deposit, monthly payments and an optional final payment to take ownership (with PCP schemes).

Car finance APR

Others, though, charge up to 9.9% APR or even more. Go for a three-year 9.9% PCP scheme and you could pay a whopping 20% over the list price of a car due to interest charges alone. Spread the cost over four years rather than three and while monthly payments might drop, you’ll also have to pay another year’s worth of interest, increasing the overall cost.

Remember, however, that deposit contributions are offered by the manufacturer and effectively count as a discount – so a big deposit contribution could more than outweigh any interest charged.*

6: Choosing not to put down a deposit

Many brands will happily hand you a car without you placing down any deposit. However, remember that unless it’s a 0% APR offer, you’ll pay more interest by doing this. 

Financing a car

Put down a £3,000 deposit on a supermini with 9.9% APR and the total amount payable – if you choose to buy the car – could be £500 less than if you put no deposit down – as the APR is applied to a larger value.*

7: Forgetting to shop around

There are some fantastic-value finance deals available, while others offer nothing but convenience. Therefore, it’s worth shopping around before deciding which offer to go for. 

A 0% four-year finance deal on a £11,000 supermini could save you around £2,000 in interest compared with one that charges 7.9% APR  so it's definitely worth doing your homework.

Car dealership

Since many manufacturers offer substantial deposit contributions or other discounts, it’s wise to calculate exactly how much you’d pay overall, whether you hand the car back at the end of the contract or buy it outright.

Whichever finance options you’re considering, though, if you keep an eye on the deposit, monthly payments plus the total amount payable (bearing in mind any discounts or deposit contributions), you can be sure you’ve got a deal that will provide all pleasure and no pain.

*Deals are correct at time of publication. Everyone’s financial circumstances are different and credit is not always available – Parkers cannot recommend a deal for you specifically. These deals are indicative examples of some packages available this week.