Car Finance – What You Need To Know

Oct 14, 2022 | All About Cars | 0 comments


If you’re not familiar with it, car finance can be confusing and full of jargon. But, and there is a but, it can also help you get a great deal on the car of your dreams. We take you through how the whole process works. And remember, if you have any questions regarding car finance, contact us at LMC Grays and we’ll be more than happy to help.


If you’ve ever found yourself talking about car finance to a car salesperson, then you would have no doubt heard many abbreviations such as PCP, GMFV, HP and APR, leaving you feeling confused about the whole experience. Don’t worry, you’re not alone. It’s important to ask question to avoid any confusion – after all, this is your money at the end of the day, you should not feel pressured or confused with any step of the process.

The process doesn’t have to be confusing if you do a bit of preparation to understand your options. Start by getting to grips with the abbreviations, various types of car finance, and the terminology before signing on that all-important dotted line.


What is HP – Hire Purchase (HP) is exactly how it sounds – after putting down an initial deposit, followed by monthly payments, you’ll be the legal owner of the vehicle. Hire Purchase (HP) is the most straightforward type of car finance available. It works best for those drivers looking to own their dream car but don’t have a chunk of cash to do so. Split into a series of equal monthly payments, you’ll be paying off the cost of your vehicle (minus the deposit you’ve made) and the agreed interest. After the cost of the car is paid off, as well as the agreed interest, you’ll own the car with no further monthly payments needed.

What is PCP – Similar to Hire Purchase (HP), Personal Contract Purchase (PCP) will involve you often putting down a deposit, followed by a series of equal monthly payments – however, unlike HP, you pay for the cost of the depreciation of the vehicle and not the purchase cost of the car. This means that you will not automatically become the owner of the vehicle. Monthly payments are cheaper with Personal Contract Purchase (PCP) due to the fact you will not own the vehicle at the end of the agreed contract length. You’ll have the opportunity to purchase the vehicle after the contract length, but there will be no pressure in doing so.


If you return the vehicle to the lender after your contract ends and there’s damage beyond the normal wear and tear, you’ll be charged fees. You’ll also be charged fees if you’ve went over the mileage limit of the contract too. Be careful.

If you decide to buy the car at the end of your Personal Contract Purchase (PCP) agreement, then you could pay it off in the final payment (also known as the balloon payment, guaranteed minimum future value, or GMFV). If you can’t afford to pay it off in one go, you might be able to get refinanced – which means you could spread the cost over another series of monthly payments.


As with all finance, car finance is calculated as a proportion of the amount that you borrow. The more you borrow, the more interest you’ll be charged. Getting a short contract length term will reduce the interest – the quicker you pay it off, the less interest you’ll have to pay.

Your credit score also matters here as well as your current personal circumstances – e.g. job, income, other loans. If you have a history of repaying debt on time and never falling into the red, you’ll more likely get a better interest rate.


Just because you have a bad credit history, doesn’t mean you can’t get car finance. Here at LMC we have helped thousands of customers just like you. Our car finance experts we will help you secure that all important finance and get you on the road before you know it. We provide bad credit car finance and used cars in Essex and beyond. Our friendly team are waiting – your dream car is just a call away.