Car finance has been around for a while now but there are still many misconceptions surrounding car finance and how it works. In the UK, 3/5 cars are bought on some sort of finance or credit. With the number of people choosing to finance their next car growing, should you jump on the finance bandwagon? Refused Car Finance take a look at the most common car finance myths and give you the facts on what is actually true.
1. You can’t get finance with bad credit
This is a common misconception as many people still believe that you can’t get car finance with bad credit. Although it is more difficult to get car finance when you have bad credit, it’s not impossible. More car finance companies are choosing to look at other factors such as affordability and deposit as well as credit score, which can increase your chances of being approved. You could consider saving up for a larger deposit to increase your chances of being approved. Having a low credit score may also mean that you may be offered a higher interest rate as you are seen as more of a risk to a possible lender.
2. You can only get car finance from a car dealership
Long gone are the days of only being able to finance through a dealership. There are many car finance providers who work independently or online. Car dealerships are limited to a number of lenders but you can shop around for yourself at home and get the finance deal that’s right for you.
3. Shopping around harms your credit score.
As mentioned above, it is recommended that you shop around for the best car finance deal for you. When you apply for car finance, a potential lender will usually run a credit check on your credit file. If you are shopping around for car finance, it’s best to only apply to companies who use a soft search, which doesn’t affect your credit score. A hard search is recorded on your credit file and multiple hard searches can have a negative effect on your credit score.
4. You can only finance new cars
When car finance was first introduced, it was typically only available on new cars. But nowadays there are many car financing options on used cars too. There are three main types of car finance deals that are most popular in the UK. They include a personal loan option, Personal Contract Purchase and Hire Purchase agreements. Each is different and can be suited to different types of people but they all have the same under lying rule of borrowing a certain amount to fund your next car and paying it back in monthly payments with added interest.
5. Car finance is slow
Car finance is a legal agreement and some people still have the misconception that getting a car finance is a long and slow process. Online car finance quotes can take as little as 5 minutes to complete an online application and additional documents can sometimes be signed online!
6. You need a deposit
When car finance was first introduced, you usually needed to pay a deposit of at least 10% of the value of the loan to secure your deal. Not many of us have a large savings fund to accommodate a deposit so that’s why there are many no deposit car finance options available today. However, if you are struggling to get car finance with bad credit, a deposit may be able to help strengthen your application.
7. You can’t pay off your agreement earlier than planned
Many people think that when you sign on the dotted line for car finance, you are stuck in that agreement till the end of the term. Whilst car finance is a big commitment, you can pay off the outstanding balance of a car finance deal at any point in your agreement. With some car finance agreements, there may be fees associated with cancelling your agreement early. If you don’t think you will see the agreement through to the end of the term, it’s best to check if there are any charges or penalties before you sign anything.