If you haven’t had car finance in the past, it can be confusing and you may be unsure whether you’re getting the right deal! Car finance is becoming an increasingly popular option when looking for ways to fund your next car. Many new and nearly new cars are costing way more than the average person’s savings account so car finance is a great way to spread the cost of owning your next car! When looking for car finance, it can be easy to make common mistakes. UK Car Finance have complied a list of the most common car finance mistakes and how to avoid them!
Car finance is a great way to fund your next car and spreads the cost of owning a car into affordable payments. When applying for car finance, it can be difficult to know how much you can afford each month. We recommend working out your car finance budget first and then also factoring in other payments that are associated with owning a car. This way you can get a better idea of how much you can realistically afford to spend on your car finance deal. It’s worth thinking about additional cost that you may also pay monthly such as road tax, car insurance, breakdown cover and fuel costs. If you are unsure of your affordability, you can use an online car finance calculator to work out your likely loan amount even before you apply for car finance!
Car finance jargon
Many people make the mistake of not understanding their car finance deal. This can be due to a number of things such as car finance jargon or not correctly reading their terms and conditions. According to a recent survey by Admiral, just one in 10 brits are able to identify all the car finance jargon used in a finance deal! Before you sign a car finance agreement, you should make sure you understand all the lingo used and if you don’t, don’t be scared to ask any questions to your car finance provider or sales person.
Understanding different types of car finance
Many consumers also think there is just one type of car finance. However, there are three main types of car finance which tend to be the most popular. These include a personal loan option, Hire Purchase (HP) and Personal Contract Hire (PCP). A personal loan can be used to pay for your next car and because you are paying off the cost of the car outright, you are automatically the legal owner of the car. You will then pay back your loan in fixed amounts each month. HP is one the most straight forward. You borrow the amount of money needed to purchase a car within your budget and then pay back the amount over a fixed term, usually in monthly instalments. After you have made the final payment, you are then the legal owner of the car. PCP is similar to HP where you make fixed monthly payments to a fixed term, however at the end a PCP deal you have three options. You can then either hand the car back, trade it in for a new car or pay the final balloon payment and become the legal owner of the car.
Credit score and car finance
Credit scores do play a major role in your car finance application and not knowing where you fall on the credit scale could hinder your application! A car finance checker is a handy tool which has been devised to check your credit for free. If you want to check your credit, you should make sure you’re using a ‘soft search’ checker which doesn’t harm your credit score! Having a better credit score can increase your chances of being approved for car finance. With this in mind, many people believe that you can’t apply for car finance with bad credit. However, there are many options available with different lending companies for people with a low credit score, depending on your affordability.
Buying the right car
Getting a new car can be a really exciting time! However, as a car finance agreement is a legal document you should make sure you get the car that you really want. When you set your budget, make it realistic and affordable, you don’t want to leave yourself skint every month! Also, if you miss payments it can really affect your credit score! So, opt for a car that’s within your realistic budget. If you are accepted for car finance with a car finance provider, you are then able to choose the right car from any car dealership approved by the Financial Conduct Authority. Some car finance approvals are also valid for 30 days so you don’t have to rush into buying a car!
Saving for a deposit
Many people believe you have to put down a deposit for a car finance deal. However, there are many no deposit car finance deals available today. This is a great way to hold on to your bulk savings and enables you to have money aside for any unexpected repairs or maintenance! You could also use your savings towards car insurance fees or road tax etc.