What is the Average Monthly Car Payment?

If you’re thinking about financing a car, one of the first questions you’re likely to ask is: “How much will my monthly payment be?”

The answer isn’t always straightforward. It depends on a range of factors, including the car you choose, how you finance it, your credit score, and the size of your deposit. While there are typical figures across the UK, your own monthly cost could be higher or lower depending on your personal circumstances.

In this article, we’ll explain what goes into calculating a monthly car payment in the UK, explore the pros and cons of different finance types, and help you work out what’s affordable for your budget. 

In This Guide:

• What is the current average monthly car payment in the UK?
• Factors that affect your monthly car payments
• Example breakdowns by finance type
• How does income impact affordability?
• How to reduce your monthly car payment
• Should you lease, buy, or subscribe?
• Make car finance work for your budget
• FAQs

Factors that affect your monthly car payments

Let's take a closer look at factors that can influence your car payment:

Credit score and deposit

Lenders love a low-risk borrower. Your credit score is a quick and easy way for them to determine your risk level. A higher credit score typically means lower interest rates and, therefore, lower monthly payments. A decent deposit or down payment (ideally around 10–20%) can also help reduce your monthly outgoings.

Loan or lease term

Spreading the cost over a longer term (e.g. five years instead of three) will lower your monthly car payment, but could also increase the total amount you pay over time due to interest.

Vehicle type and age

The type of vehicle you buy makes a big difference to your monthly auto loan payment. A shiny new electric 4x4 is likely to cost you more than a modest used hatchback would. Remember, it’s not just about the initial price tag; insurance, tax, and depreciation all play a part.

Mileage caps and insurance add-ons

Lease agreements often include mileage limits. Exceed these, and you could be hit with hefty penalties. Optional extras like GAP insurance and maintenance packages can also bump up your monthly payment.

Example breakdowns by finance type

The type of finance or car loan you get can have a big impact on your car payment. So, let's run through some examples by finance type:

PCP explained

PCP (Personal Contract Purchase) is one of the most popular car finance methods in the UK. If you opt for PCP, you'll pay a deposit (sometimes called a down payment) followed by fixed monthly payments for a set term (usually two to four years). At the end of the payment period, you can either return the car, pay a lump sum (the balloon payment) to buy it outright, or trade it in.

Hire Purchase (HP) monthly cost examples

With HP, you’ll own the car at the end of the agreement. Monthly payments tend to be higher than PCP because you’re paying off the full value of the vehicle. Typically, you can expect to pay between £160-£280 per month for a hire purchase vehicle, and the payment period may last longer than a PCP period, but there's no balloon payment at the end.

Leasing and contract hire monthly costs

Leasing a vehicle effectively means that you rent it long-term. Leasing is often cheaper per month compared to ownership-focused finance options, but you don't get the option to own the car. You may also find yourself dealing with restrictive mileage and wear-and-tear clauses (which could sting you for substantial amounts of money if you damage the vehicle or drive it too much).

Car subscription models

Subscription services have taken the world by storm ever since Netflix and Amazon rolled out their streaming services. Now, car companies are getting in on the action. With a car subscription, you pay a monthly fee that includes the vehicle, insurance, maintenance, and sometimes breakdown cover (depending on the subscription model you choose). However, car subscriptions aren’t mainstream in the UK, so options are limited and tend to be more expensive than lease or finance. 

How to reduce your monthly car payment

What if your circumstances change, and what was once affordable becomes hard to manage? Or what if you want lower monthly payments from the get-go? Here are some ways to bring your monthly car payment down:

Increase deposit or trade-in value

A higher upfront payment means you’ll have less to borrow, so your monthly payments will be lower. Trading in your old car can also help reduce the cost.

Choose a longer term

Stretching the loan or lease term reduces the monthly amount. If you opt for this, do remember that you’ll likely pay more interest overall.

Consider used or lower-spec models

That top trim level with heated leather seats may be lovely, but it’s probably much pricier than a more modest model. Lowering your standards a bit could save you a lot in the long term.

Compare finance providers

Never settle for the first quote you're offered. Compare rates from banks, brokers, and dealerships to find the best deal. 

Make car finance work for your budget

A car payment can be a big monthly expense, so it’s worth getting it right. From understanding your finance options to tweaking your deposit and term, small decisions can make a big impact.

Whether you're after a budget hatchback or something flashier, make sure you compare deals and find the most affordable solution for your circumstances.

FAQs

What is a good monthly payment for a car in the UK?

For most people, a payment between £160 and £280 is considered reasonable, although this varies depending on your income and the type of car you’re looking for. Payments for EVs, SUVs, or new cars often exceed this.

Are electric cars more expensive monthly?

Generally speaking, yes, electric car payments are a bit more expensive than the average car payment. Although running costs are lower, EVs often have higher up-front prices because of the higher purchase price, which leads to larger monthly finance payments.

Can I get a car loan with bad credit?

Yes, but expect higher interest rates and stricter terms. Specialist lenders may be more flexible, but shop around carefully.