What you should know before applying for car finance

Finance is one of the most popular ways to buy your next car, with over 80% of UK drivers now using finance to afford the car they want! There are many benefits to buying a car on finance, one of the biggest being how affordable car finance can be. UK Car Finance have put together a list of the benefits of car finance and whether it’s the right option for you!

Car finance and your credit score

When applying for any type of finance or credit, your credit score plays a massive part in your chances of being approved. As you would expect, if you have a good credit score, you will have a better chance of being approved. However, bad credit car finance isn’t impossible either! Our first piece of advice is to check your credit file online to see what position you’re in before you start applying. Also, be wary of how many credit searches you are making. When you get declined for any sort of finance, your credit score can take a hit! There are many ways you can easily improve your credit score if needs be. Simple things such as paying all your bills on time, getting yourself on the electoral role, cancelling any unused credit cards/accounts or using a credit card to rebuild credit.

Different types of car finance

Car finance can get confusing as there are a few types of finance you can apply for. The one that you choose to go for depends on what you want out of your finance deal. The most popular types of agreements are Hire Purchase and Personal Contract Purchase. In a HP agreement, you usually pay a 10% deposit of the vehicle and then pay fixed monthly payments over a certain period. You do not own the car until you make all the payments but it is popular choice as it gives you the freedom to choose whether you own the car or not. Alternatively, PCP is a finance agreement which allows people to change their car regularly, without worrying about reselling! In a PCP agreement, the finance company pays the dealership and you repay the finance company in monthly instalments. Other types of car finance also include Personal Contract Hire, personal loans and credit cards. Make sure you read up on the different types before applying!

Is guaranteed car finance a myth?

To put it simply, yes, it’s a myth. It’s impossible for any car finance company to claim they can guarantee that anyone can get accepted for car finance. The Financial Conduct Authority (FCA) set guidelines for responsible lending and guaranteed car finance goes against their rules and regulations. Be wary of any companies who say they can get you automatically approved without backing their statement with statistics and evidence.

Car finance can be more affordable

One of the biggest benefits of car finance is how affordable it is. As previously mentioned, there are many ways you can pay for your car under a car finance agreement so you can choose which suits you and your budget. Using an online car finance calculator is a great way to work out your affordability. Just set your monthly budget, duration of your loan and what your credit is like and you can work out how much you are likely to be able to borrow from a range of lenders. Then you can browse a range of cars within your monthly budget. There are also a range of no deposit options available on most cars on finance, which can be beneficial if you don’t want to spend your savings or don’t have a deposit to put down.

Factor in all your payments

Getting your next car on finance can be a really exciting time, especially if it’s a car you’ve always wanted! When working out your monthly budget, also give yourself room to be able to afford all the added extras that come with owning a car. You will need to think about the cost of car insurance, fuel, road tax, maintenance such as MOT and services, breakdown cover and any unexpected repair costs too!