5 Car Finance Tips Every Driver Needs To Know.

If you’re looking to get a car on finance, it can be a really exciting time. Car finance allows you to spread the cost of getting a car into affordable monthly payments which makes it more budget friendly. It’s worth remembering that car finance is never guaranteed though and you will need to meet the lenders criteria before you can receive an approval. With this in mind, there are a number of factors you can consider before getting a car on finance and to help decide if it’s right for you. The guide below has been designed to do exactly that and help make your car financing worries go away.

Is car finance right for you? 

Whilst buying a car with cash is the most cost-effective way to fund your next car purchase, for many drivers it’s not feasible. Cars can cost thousands of pounds to buy outright and even used cars may be out of your budget. This is one of the reasons why car finance is so popular. It means you can get a newer and better car than you would with cash and pay for it over a term that suits you. There are also a number of car finance agreements that you can choose from, and it can be worth exploring each in more detail to see which you’re best suited to. Find below the top 5 things you should consider before getting a car on finance. 

Stick to your budget.

When it comes to car finance your budget is really important. Not only can it determine which cars are in your budget, but it can also affect your affordability. If you’re not sure how much to borrow, you can use a free car finance calculator UK to find cars within your budget. It’s important that you know you can meet each and every payment over the agreed term, usually over a number of years, and always on time. Failing to stick to the terms of your agreement can negatively impact your credit score and can seriously affect your ability to borrow in the future. 

Check your credit score.

Before you apply for any form of loan or finance, you should check your credit score first. Your credit is really important for car finance and if you have bad credit, you may be worried about the outcome of your application. However, with a little future proofing and taking care of your finances, you can help to increase acceptances and get a better car finance rate. From a lenders point of view, it’s all about risk and the likelihood of you paying your loan back on time and in full. Missed or late repayments in the past mean that you’re more likely to default on future loans too. It can be worth taking some time to increase your credit score, meeting all repayment deadlines, and reducing any existing debt to make your loan more affordable. 

Consider whether you want to own the car. 

Whether you own the car or not is really important when it comes to car financing. If you want to own the car throughout the agreement, you will be best suited to a personal loan. This is when a bank or building society lends you the money to buy a car and it get deposited straight into your bank account. PCP and HP have options at the end of the deal for you to take ownership of the agreement but until then the lender will own the car. It can be easier to take ownership of a HP car as this type of finance allows you to spread the cost into equal monthly payments. PCP on the other hand benefits from low monthly payments because most of the value is differed util a final balloon payment. These balloon payments tend to be thousands of pounds and may not be the most cost-effective if you wish to keep the car.

Search for the best rates

You can get a car with no interest to pay but this usually applies to brand new cars on PCP. Most other car finance agreements will require you to pay interest on top of your monthly payments. Due to this, it’s really important that you find the best rates for your circumstances. You may decide to refinance an auto loan with another lender for a better rate

It can be worth taking some time to shop for the lowest car finance rate as you don’t want to be making your agreement more expensive than it needs to be. Other factors such as credit score can affect your interest rate offered and if you’re being quoted high interest fees, it can be best to work on your score first.

Consider saving for a deposit.

Some car finance agreements can require you to put down a deposit at the start so it’s worth knowing beforehand. Whilst there are many cars with no deposit available, putting more down for your agreement can be beneficial. Agreements such as hire purchase splits the value of your chosen car into equal monthly payments an putting down a deposit helps to reduce the loan term. A smaller loan can be paid off faster or help to reduce your monthly payments. 

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