Pay-as-you-go black box car finance explained

It can be difficult to get car finance, especially if you have a poor credit rating. Finance providers judge their lending decisions against various criteria, and if you fall short in any of these areas, it could deem you too big of a risk to proceed with a loan.

Some subprime lenders tailor deals to people with bad credit, but these are often marketed with poor terms including very high interest rates, so it’s often better to avoid them until your credit score improves. 

Another potential solution is pay-as-you-go (PAYG) car finance, which requires a black box to be placed in the car. This can be a helpful option for anyone who’s keen to finance a car, but struggles to get accepted for a traditional PCP, PCH or HP finance deal.

What is pay-as-you-go black box car finance?

The most important thing to note is that black box car finance isn’t the same as black box car insurance. While both work by having a device fitted into your car, they are designed to do quite different things.

A car insurance company uses a black box to monitor how and when you are driving, using sensors and GPS tracking to ensure you are driving safely and smoothly, and in some cases that you are driving at certain times of the day and not racking up too many miles. 

Instead, a tamper-proof car finance black box is more akin to a PAYG electricity meter, because it can immobilise your car if a payment isn’t made to the finance company on time - a bit like the lights going out if you don’t top up the electric. Lenders will explain how this works in practice before you sign up to a deal, with some providing a few days of leeway before preventing the car from being driven.

The PAYG black box has to work in a safe manner, so it won’t prevent the car from moving while it’s being driven, but will simply prevent it from starting the next time you get in the car. Once a payment is made, the finance provider may often provide a pin to put into the black box, making it possible to quickly get the car running again. If you aren’t able to make payments, the lender may also have a policy where it uses GPS within the black box to determine its precise location and send a transporter to recover it. It’s important to read the small print to know where you stand in this eventuality. 

Should I use black box car finance to buy a car?

Black box PAYG finance is usually linked to a Hire Purchase (HP) finance deal, whereby the car is paid for in monthly instalments until the full value of the car is covered and you own the car outright. However, this is likely to be an expensive way to pay for a car in the long run, with high interest rates meaning you’ll pay more to own the car than if you were able to buy it outright or using a conventional HP deal.

Unfortunately, customers with poor credit are seen as higher risk, so interest rates are higher as a result. For most people, this will make it a last resort method of buying a new car. It may cost less in the long run to wait until you can improve your credit score before going ahead. 

If you really need a car for transportation, a cheap used model could tide you over until your financial situation improves. In any case, avoid signing on the dotted line for PAYG black box finance if you may struggle to afford the monthly payments or feel the deal is too expensive in the long run.