What you need to know before getting a car on finance

What you need to know before getting a car on finance

When it comes to getting a loan to buy a car or getting a car on finance it can be like navigating a minefield with technical jargon at every corner. That is why we have put together this really simple guide full of handy tips to help give you the very best chance of being approved when you next apply for car finance.

Where can you get car finance?

The first thing to consider is where to get your car finance from. The most common places to obtain car finance are from a car dealership, a car finance lender, a car finance broker or a bank.

It’s extremely important to try and get the best possible rate whilst reducing your likelihood of being declined, tools like this car loan calculator come in really handy. It will search your credit report and provide you with your likelihood of being approved and at what interest rate. It’s a soft search which means that it doesn’t harm your credit file either and only you and the searcher can see that it was ever done.

Hire Purchase or Personal Contract Purchase

Hire Purchase divides the total amount borrowed into equal monthly instalments. Personal Contract Purchase has smaller monthly repayments with a large payment at the end of the agreement, often known as a balloon payment.

Deciding which is better for you often comes down to whether you want to keep the car at the end of the agreement. Hire Purchase has bigger monthly repayments, but it does mean that you own the vehicle at the end.  Personal Contract Purchase becomes more desirable if you don’t want to keep the car after as you can duck out of the balloon payment and hand the car back.

What is the criteria for being approved for finance?

To get finance in the UK you usually have to meet some very basic benchmarks, these are:

  • Age – you must be 18 years or older
  • UK Residency – you must have lived in the UK for at least three years
  • Not bankrupt – you cannot be currently declared bankrupt
  • Can afford finance – you must be able to prove your affordability

Beyond this basic criteria, each lender will have their own criteria, often referred to as their score card. This is often kept private, but you can expect things such as a strong credit score, a good income and being a home owner to impact the rate you receive.

What if your credit is bad?

You can get car finance with poor credit, however you want to use a bad credit car finance specialist in this case. When you have a poor credit score you can expect to receive a higher interest rate on your loan as the lenders see you as a bigger risk. Using a specialist broker will allow you to be matched up with the lender you are most likely to be approved with the lowest possible rate.

As credit scores are a big factor when it comes to obtaining finance you want to look at improving your credit score as much as possible. It’s worth noting here that finance providers look more favourably on credit files on the rise than those falling, regardless of the actual score. To improve your credit, you should pay back all your loans on time and in full every month. If you have recently received a County Court Judgement this will likely harm your chances of being approved. The best advice here is to wait approximately 12 months after you received the CCJ before applying for credit to ensure you don’t get declined because of it.

Can you get car finance without a deposit?

Yes, no deposit car finance is an increasingly popular way of getting your car on finance. Most people struggle to save up a lump sum and would prefer to spread the cost monthly. This option allows you to do just that. This likely will mean that your total amount payable will be a bit more as without a deposit you pay for the full car in monthly instalments which you are charged interest on. That said, it does make the cost of the car a lot more manageable for many people. 

Buying a car on finance doesn’t have to be difficult. Do you research beforehand, check the reviews of the provider your thinking of going with and even asks friends and family in a similar financial situation as yourself for a referral.

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