Whether you’re thinking about refinancing your current car finance deal or you’ve never taken out car finance in the past, there are a few ways in which you can make sure you get the best deal possible. With over 91% of cars in the UK bought on some sort of credit or finance last year, the UK car finance industry is booming. But why do so many people choose to get their next car on finance and how can you make sure you’re getting the best deal possible?
Why should you choose car finance?
Car finance provides a great way to spread the cost of owning your next car into affordable monthly payments. Many people don’t have the savings fund in place to fork out thousands to cover the cost of a new car, which is where car finance options come in. Consumers choose to finance their vehicles as you avoid paying the full cost of a car up front. This way, you can typically get a newer car and spread the cost into more manageable payments. Car finance is usually straight forward too and consumers can benefit from a great range of benefits such as low interest rates and no deposit options depending on their personal circumstances.
Check your chances of being approved before you apply
If you are applying for car finance, you may be unsure whether you will be accepted or not. Usually potential lenders will perform a credit check on your credit file before accepting you for any sort of loan or finance. This is due to the risk involved and lenders want to know that you will be able to pay your loan or finance deal back on time and in full. Your credit history is a great way to determine this as it shows what type of borrower you have been in the past. Having a good credit history can work in your favour, however applying for car finance with bad credit doesn’t mean you will automatically be declined. Many potential lenders now look at a few factors such as credit score, affordability and other personal circumstances to determine whether they will accept you for finance or not. If you are worried about whether you will be accepted, you can check your chances of being approved for finance using a free car finance check even before you apply. If you are checking your chances of being accepted before you apply, make sure you stick to a soft search credit check as this will not affect your credit score. A hard search credit check is usually recorded on your credit file and making multiple hard searches in a short space of time can negatively affect your credit score.
Work out your monthly budget before you apply
It’s important that you will be able to meet the requirements of your car finance deal. When you enter into a car finance agreement, you are signing a legal document to say that you will be able to pay your finance deal on time and in full each month. Owning a car can be expensive and you should be aware of any legal implications or effects on your credit score if you fail to stick to the repayment terms of your deal. Before you apply for car finance, you can work out your car finance budget using an online car finance calculator. This way you can find out how much you could borrow for car finance based on your monthly budget, duration of loan and current credit score. When you set your car finance budget you should also consider a number of different factors that you will need to take into consideration. You will also need to factor in road tax, car insurance, fuel costs, breakdown cover, MOT and servicing costs and any unexpected repair costs.
Know your car finance options
Within the UK car finance industry, there are a few different ways in which you can finance your next car. There are 3 which are the most popular in the UK. These include a personal loan option, hire purchase agreement and personal contract purchase. Each of the finance options have the same underlying rules where you borrow a certain amount of money from a finance lender and then make monthly payments with added interest to the end of an agreed term. There are a few differences between them and some finance deals may suit different people better.
A personal loan option is usually one of the simplest ways to finance your next car. They are usually offered by a bank or building society and lets you spread the cost of buying a car over 1-7 years. Personal loans can be used for pretty much anything so you can buy the car outright with the money you borrow. This means you will automatically become the legal owner of the car! Monthly payments are usually lower on a personal loan option, but it may be harder to pass a credit check with a bank or building society.
Hire Purchase (HP) is another simple way to finance your next car and it is one of the most popular. You usually pay a 10% deposit but there are many no deposit car finance options available today. You then make monthly payments to a fixed term until the end of the agreed period. You then become the automatic legal owner of the car at the end of the term. This usually does mean that if you miss payments, then you could potentially lose the car in the process so it’s important that you make sure you can meet your repayment schedule each month. Hire purchase can be set up inside a car dealership or there are many online car finance brokers who can arrange a hire purchase agreement for you.
Personal Contract Purchase
This type of finance is similar to Hire Purchase, were you make monthly payments to an agreed term. However, at the end of a personal contract purchase, you usually have 3 options. You can either return the car to the dealership, pay the resale value (often called the balloon payment) and keep it or use the resale value towards buying a new car. Within Personal Contract Purchase agreements, there can be mileage restrictions and exceeding your mileage can result in additional charges. Its best to read the full terms and conditions of any car finance deal before you agree to your car finance deal.