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I would like to borrow
To pay back over
3.5 years

Zuto is a credit broker, not a lender. Our rates start from 7.9% APR. The rate you are offered will depend on your individual circumstances. Representative Example: Borrowing £7,000 over 48 months with a representative APR of 19.3%, the amount payable would be £205 a month, with a total cost of credit of £2,831 and a total amount payable of £9,831.

How car finance is calculated

If you’re currently considering borrowing as an option for buying a car, you might want to know how car finance is calculated. 

What kind of car finance deals are open to you will depend on a number of factors, but the main questions you’ll be asked are:

  • What is your credit rating?
  • How much can you afford to pay per month in repayments?
  • Over what term would you like to pay back your loan?

Your personal financial circumstances will always be a deciding factor in just how your finance is calculated.

Deposits and interest rates

The larger the deposit you can put down on your vehicle, the better the rate of interest you are likely to get. The rare 0% interest rates available for car finance are always given to car buyers with sizeable deposits.

Deciding factors

Your individual circumstances will always impact the interest rate at which your car finance is calculated. Your employment situation and your credit history can both be deciding factors in what kind of car finance is open to you and at what rate.

If you presently possess a good to excellent credit score, you will have little trouble securing finance at a good rate, but the greater risk you are considered, the higher your interest rate will be.

For example, younger people with limited credit history are seen as a high-risk investment by lenders where car finance is concerned. If you’ve experienced payment problems such as defaults or bankruptcy in the past, these can affect how finance is calculated too.

Give yourself the best chance at car finance

If you want to ensure that car finance is calculated favourably for you, there are steps you can take to help:

Save up a deposit

The larger your deposit, the better rate of interest you will be offered. Having a deposit also lowers your monthly payments, which makes you seem like a better prospect to lenders. As little as £500 in deposit money can make a difference.

Rebuild your credit history

Before your car finance is calculated, make sure your credit history is the best it can be. This might take up to 12 months, but it’s worth it.

Repay any existing debts in full wherever possible. If you’ve defaulted on payments, get in touch with lenders and arrange a repayment plan.

Establish yourself on the electoral role and ensure your address is up to date on all your current credit arrangements.

Set up direct debits to show responsible and regular paying behaviour. You can do this for regular outgoings such as your household utility bills, and with a direct debit you won’t be late paying again provided the funds are in your account.

Read up on “rebuilder credit cards”. Built for this express purpose, these cards can show lenders you can manage borrowing and they will be more likely to lend.

Online affordability calculators

You can get an estimate of your ability to secure car finance with our online car loan calculator. Simple to use, all you require is some basic information about yourself and your finances. Rate your history of credit from bad through to excellent, then input your repayment per month budget and the length of time you would like to repay your loan over, then get your quick quote in less than a minute.

Car finance calculations

If you’ve still got questions about how car finance is calculated, or how your credit rating might affect your monthly payments or overall success, you can contact us for a discreet one-to-one call back. Our specialist team will advise you and offer support during any application you make.

Other related FAQs

Looking for more related content to this? We’ve picked a selection of related topics that you may find helpful

Car loans are calculated according to a number of factors, including the type of loan you take out, the term of the loan and your credit rating.

No, you cannot transfer your car finance to another car. However, depending on your circumstances, you may be able to settle your current finance agreement and begin a new one on a different vehicle.

Applying for a car loan in someone else’s name is referred to as ‘accommodation finance’. This is likely to be against the finance company’s terms and conditions – and, in some cases, it could be considered to be fraud.

Settling a car finance agreement is usually just a case of paying back the amount you borrowed, plus any additional fees. If you want to settle early, you may face extra charges.

Dealerships and banks have access to some slightly different finance products. Banks can offer personal loans – and dealers can sometimes offer special promotions like 0% APR. Since you’re free to choose – you should compare all options available to you.

In the past, car finance companies sometimes offered payment protection insurance (PPI) with their products. This is no longer the case – and the deadline has now passed for making a claim for mis-sold PPI.

If you want to sell a used car with a loan, check the details of your agreement carefully. Unless you’re the legal owner of the car, you won’t be able to sell it until you’ve paid a settlement figure.

It is possible to modify a financed car – but it’s absolutely vital that you check with the company that provides the finance that it’s okay before you do. After modification, you’ll need to inform your finance company, and insurance company that work has been carried out.

Whether or not you can return a financed car depends on the type of agreement you have. If you’ve got a hire purchase (HP) or personal contract purchase (PCP) plan, you’re allowed to hand it back – as long as you have paid off at least 50% of the loan, including any fees and interest.

In many cases, yes, changing or part-exchanging a car with outstanding finance is possible. Since car finance can’t be moved from one car to another, you (or a dealership you’re getting your next car from) will have to settle the current loan and begin another on your next vehicle.