Car finance

In short, yes – though not all providers will accept those with poorer creditworthiness, and those that do may charge higher interest (as they see you as a higher risk). Usually, applying to a lender is the only way to know if you'll be accepted for a loan. Yet that marks your credit file, and could affect your ability to get future credit. Our Eligibility Calculator uses a 'soft search' to calculate and show your chances of acceptance before applying.

The type of car finance you’ve taken out will dictate your options at the end of the contract.

• At the end of a Personal Contract Purchase (PCP) deal, you must either return the car or make a one-off ‘balloon’ payment to purchase it.

• With Hire Purchase (HP). you will own the car after the final payment has been made.

• If you leased the car you must return it at the end of the term – there's no option to purchase it.

There are a couple of options to end a car finance agreement early...

Voluntary termination

Under the Consumer Credit Act 1974, you can legally terminate your contract if you've paid over 50% of the total cost of the loan, including interest and the final balloon payment. Car finance companies won't usually like this as they will often be taking back a car worth less than the remaining payments, so be aware that a voluntary termination of your contract might not be made easy for you. They may try to convince you to try other financing options, and it might take longer to process than you'd hope.

You'll still need to pay charges once the contract has been terminated. These include admin fees, such as a fee for collecting the vehicle, as well as charges for any damages or excessive mileage. A voluntary termination will show up on your credit file, although it shouldn't affect your credit score as much as clinging to a contract you can't afford and missing out on payments.

Also note that a voluntary termination differs from a voluntary surrender, in which less than 50% of the loan has been repaid. The finance company will take the car but you'll still have to pay the remaining balance of the contract.

Early repayment

The finance company only guarantees the value of the car at the end of the agreement. So if you want to sell your car two years into a four-year deal, you'll have to pay the difference between what it's worth and what you still owe.

Say, for example, at the point you want to repay, your car is worth £15,000 but your finance settlement figure is £17,000 – you'd have to pay the extra £2,000 to the dealer to clear your 'negative equity' before you can get out of the deal.

Some finance providers will charge you an extra fee on top to settle early, some won't. Check the fine print before you sign up if you think you'll want to do this.

There can be a variety of implications if you miss repayments...

• Late payment fees. If you miss a car finance payment, most lenders will charge you a late payment fee. These fees can vary from one lender to another but are typically outlined in your loan agreement.

• Negative impact on your credit score. Missing car finance payments will negatively impact your credit score. Each missed payment will be reported to credit agencies, making it more difficult to secure credit in future.

• Potential vehicle repossession. If you continue to miss payments, your lender may initiate the repossession process. In the UK, lenders have the legal right to repossess the vehicle if you default on the loan. This can result in the loss of the car and still leave you responsible for the outstanding debt.

• Legal action. In some cases, lenders may take legal action to recover the debt. This can lead to court judgments and further damage to your credit file.

Usually, yes, you can sell your car on Hire Purchase (HP) and Personal Contract Purchase (PCP) finance agreements, including when there is outstanding finance. You can never sell a car you’re leasing, however, because it’s never really yours.

To sell a financed car, you must request a settlement letter from your finance company, then sell your car to a dealer who will clear the outstanding balance directly with the car finance company, paying you the surplus (if any). Check your provider's policy first, as not all allow you to do this.