Getting a car on finance can be a very exciting process. Car finance allows you to spread the cost of the car you want into affordable monthly payments. Because car finance is a great way to breakdown the cost, you can usually get a better car than you first thought too! Choosing your car is great fun but how can you be sure you get the best finance deal possible? We’ve created a checklist for getting a car on finance and the most important things you should know before you sign on the dotted line.
1. Check your credit file
The first thing you should do before you apply for any sort of loam or finance is to check your credit file. Many potential lenders will run a soft search credit check on your credit file to get a sense of how good you are at meeting repayments. People applying for car finance with poor credit may receive higher interest rates and can struggle to get approved. If your credit is a little on the low side, you could consider increasing your credit score before you start applying to benefit from better rates. When you check your credit file you should make sure all your information is accurate and up to date.
2. Types of car finance
Many people assume that car finance is a one size fits all agreement. However, in the UK there are 3 main type of finance agreement that tend to be most popular. They are Hire Purchase, personal loan, and Personal Contract Purchase.
- Hire purchase. A straightforward type of finance which covers the full cost of your chosen car. Monthly payments are usually higher as you spread the cost into monthly payments with added interest. At the end of the agreement, you will pay an option to purchase fee and the car will be yours to own.
- Personal Contract Purchase. A form of hire purchase which tends to have lower monthly payments as the customer only pays off the value of the deprecation of the car throughout the term. The customer then has 3 options at the end of the agreement. They can either choose to hand the car back to the dealer, use the value on a new PCP deal with a new car or pay the large balloon payment and keep the car.
- Personal Loan. Personal loans are usually supplied by banks or building societies and can be more suited to people with good credit scores. A personal loan isn’t secured against the vehicle and can be used to purchase any car you want. If accepted, your requested amount will be deposited into your bank account, and you can shop around for the car you want!
3. Affordability check
Aside from a credit check, many lenders will also require you to pass an affordability check. This type of check can be done by the lender requesting bank statements from the customer. An affordability check allows the lender to determine how you will pay back your finance. They take into account your monthly income and your outgoings to determine your monthly budget and how much you would be offered for finance. Usually, higher income and lower expenditure means you can lend more for a vehicle.
4. Deposit contribution
Before you apply for finance, you may want to consider having a deposit saved up. A finance deposit can help you to save money and also increase your chances of getting approved. From a lenders point of view, it means that they don’t have to lend as much money out and can create more security that you will pay you loan back on time and in full. If you need a car in a hurry though, there are a number of no deposit car finance deals that have affordable monthly repayments too.
5. Compare car insurance rates
So, you’ve got your heart set on your dream car, but have you checked how much it will cost to insure? Car insurance is a legal requirement in the UK and there are a number of factors which can affect insurance rates. Car insurance helps to protect you in the result of a car accident or road collision and eases the burden of financial cost and repairs. If you are shopping around for cars, you should check car insurance rates for a number of cars and get the best deal.
6. Test drive cars of your choice
Many car finance deals will last around 1-5 years so it’s important to choose a car in your budget that’s comfortable and suits your driving style. If you have a number of cars in mind, its best to take your time and test drive them, especially if you’re purchasing a used car. You should test drive the car for at least 30 minutes and drive on different kinds of roads. You should check that the car suits your needs such as adjustable steering, enough room for the family, boot space, removable seats etc.