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Should You Buy Your Next Car on Finance?

There are many ways to fund your next car. Whether you’re looking for new or used, there are a few different funding options available. In the UK, over 82% of drivers are choosing finance to buy their next vehicle! Car finance is a great way to spread of the cost of owning a car, due to low interest rates and a wide variety of loans available to buyers. But determining whether it’s for you is down to your personal circumstances!

Can you afford it?

Within a car finance agreement, you are sometimes required to put down a deposit and will usually involve paying back an agreed amount each month to an agreed term. When you sign a car finance contract you are agreeing to all the terms in a legal document, so make sure you read it properly before you commit to any deal. The main idea of car finance is to make owning a car more affordable. The monthly budget you set yourself should be one that you can comfortably afford each month. A car finance agreement also usually lasts between 2-5 years so keep this in mind when setting your monthly budget as you will be paying it back for a while. Most contracts usually include a missed payment or late payment charges, which can also impact your credit score!

When taking out a car finance agreement, you should also take into consideration the cost of owning a car. Each month you will be expected to pay back the agreed amount to the car finance company but there are also other costs to budget for each month. You will also need to factor in car insurance, breakdown cover, road tax, fuel, maintenance costs such as MOT and services and any unexpected repair costs. Don’t be put off though, all of the additional costs are totally affordable and can be factored into your overall monthly payments!

Does my credit score affect my application?

When you apply for car finance or any sort of loan, lenders will usually run a check on your credit to see where you fall on the credit scale. Having a poor credit score can affect your chances of being accepted and the loan amount you are offered. However, applying for bad credit car finance isn’t impossible! Car finance should be easily accessible to everyone no matter what their credit score and there are many finance companies out there who are bad credit car finance specialists!

If you’re worried about bad credit, there are many ways you can easily improve your credit score! When you register on the electoral roll, you are confirming to lenders that you are who you say you are and your address history! You should also check your credit file yourself before you start applying, look for any mistakes on your file, check if you’re linked to any financial partners and any fraudulent activity. Lenders want to make sure that applicants will be able to pay back their monthly payments on time. If you’ve had trouble in the past with missed payments, use a calendar to remind you when payment is due or you could set up a direct debit for any bills just after your get paid! Make sure you don’t miss any payments at least 3 months before you apply for car finance to put you in the best possible position!

Don’t get bogged down by finance jargon

Car finance can sometimes be a little bit complicated, but it doesn’t have to be! Do your research into finance agreements and common car finance jargon. You’ll more than likely come across a few word and phrases that you’re unsure of and may agree to terms and conditions you don’t understand! If you’re applying at a dealership or through a car finance provider, it’s ok to ask as many questions as you need to. You will ultimately feel more comfortable with the deal you received and saves time down the line if you are unsure of something! Get your application off to the best start and do your research first!

Are there different types of car finance?

The most popular car finance agreements are Hire Purchase (HP), Personal Contract Hire (PCP) and a Personal Loan. Within a HP agreement, you usually put down a deposit but there are also no deposit car finance options available! Then spread the cost of the value of the car into an agreement number of monthly payments. When you have made all of the agreed payments, you will then own the car outright. A PCP deal is similar to HP, you will pay back agreed monthly payments over an agreed term. However, at the end of the agreement you don’t own the car. You can either hand the car back, make the balloon payment and own the car or part exchange it on a new finance agreement. If you want to own the car outright, a personal loan is a good option for you. You can use a personal loan for pretty much anything! Your loan amount can be used to buy a car which you will be the legal owner of and then you will pay back the finance company agreed monthly payments. The type of agreement you choose is completely down to which suits you the best.

Explore all options available to you

Car finance is a great way to purchase your next vehicle. As mentioned, within car finance there are a few different options available to you which are definitely worth exploring. Car finance gives you the chance to get the car you want with affordable repayments. If you opt for a finance agreement such as PCP, you also have the freedom to change your car regularly! If you’ve previously been refused car finance, then you may already know that car finance is not for you! You could also buy your car with cash, using savings, credit card or leasing. Do your research on what is best for you before you commit to anything!

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