If you’re looking to get a car on finance, you may be wondering how to go about it or how to get the best deal possible. If you’ve never had a car on finance before or you’ve been burnt in the past by the wrong deal, the guide below is here to help you. There are so many benefits to getting a car on finance and it’s no wonder that it’s the most popular way to fund a car purchase however, there are a few things you should know before you start applying.
Why choose car finance?
Car finance is a hugely popular choice for many drivers. Car finance allows you to spread the cost of getting a car into affordable monthly payments till the end of an agreed term. Car Finance is usually spread over 3-5 years, and you can choose monthly payments which suit you. Car finance usually means that you can get a better car than you would with cash and pay for it over a term that suits you. There are three main car finance agreements in the UK, each have a similar structure, but all should be looked into to see which its best for you. They are a personal loan, hire purchase deal or personal contract purchase agreement. Let’s take a look at the 5 things you should consider before you take out finance.
- Check your credit
If you have a low credit score, you may be looking for a car finance deal with no credit check required, however, you may be out of luck. Car finance lenders aren’t legally obliged to perform a credit check on you, but it is best practice. When lenders perform a credit check before car finance, they can see how you’ve handled credit in the past and decide whether or not they’d like to offer you finance. If you’ve missed payments in the past, have defaults in your name or made late repayments, lenders may be put off as you’re more likely to default on their finance too. Before you apply for any form of finance or credit, you should check your credit to see where you fall on the credit scale. If your credit score is low, you can then use some time to work on your credit and increase your chances of getting approved for finance.
- Interest rates are important
It can be possible to get 0% car finance deals, but it can be worth exploring all options too. Lenders use interest rates to make money on the finance they lend out. A higher interest rate means you pay more back to the lender. Car finance with no interest is usually offered on brand new cars which can seem attractive but the cost to finance will be much higher than a used car. It can be more cost effective to compare lower car finance rates on a range of different cars to get the best possible deal.
- Save up for a deposit
It can be possible to get a car with no deposit needed but having a deposit can work in your favour. Car finance agreements like hire purchase use the loan amount to calculate the monthly payments. By putting more down for a deposit at the start of your agreement, you can help lower the loan amount which in turn reduces your monthly payments and can also help to lower your interest rate offered. It can be hard to save up for a deposit but putting more down can be more cost effective and cheaper in the long run.
- Explore different types of car finance
As mentioned above, there are different types of car finance agreement that you can choose from. It’s worth exploring each in more detail to see which suits you. Personal loans can be the most cost-effective way to by a car. This when you borrow a set amount of money from a lender to buy a car and have the freedom to get any car within your budget. However, personal loans can be better suited to those with good credit scores. PCP and hire purchase are both forms of secured loans which means the lender owns the car until the agreement has ended or the final payment has been made. Lenders can use the car as collateral if you fail to stick to the terms of your car finance agreement.
- Choose to finance first
Most drivers think the best way to get a car is to head straight to the dealer, find a car you like and get the finance through the dealership. However, choosing to finance first through a car finance broker can save you money. Car finance brokers are essentially the middleman between you and the lender, but they have access to multiple lenders at once. This means you can find the cheapest and most suitable car finance deal first. You can then use your car finance deal at any car dealership which is approved by the FCA and find a car within your budget.