applying for car finance

What You Need To Know Before Applying For Car Finance

Looking to get a car on finance? We’ve compiled a list of the factors you should consider before getting a car on finance. Car finance is a great way to spread the cost of owning your next car into affordable monthly payments. However, if done incorrectly, car finance could end up costing you more than it needs to. Check out the guide below on what you need to know before you submit an application for car finance. 

Check your credit report

The first thing you should do before any application for finance or credit is to check your credit report. Lenders use your credit report to see which type of borrower you have been in the past and if you can be trusted to pay back your loan on time and in full. When you check your credit report, you should make sure all your information is accurate and up to date. It’s important that the information on your car finance application matches the information on your credit file so lenders can verify your identity. If you’ve missed payments in the past, have no credit history or have high levels of existing debt, it can be a good idea to increase your credit score before you start applying. This can help you get easier acceptances and better finance rates. Not sure if you’d be approved for car finance? Try a free car finance check with no affect to your credit score first

Work out your budget

When it comes to getting car finance, your budget and affordability is really important. Car finance is a legal agreement, and you will have to meet all repayments till the end of your term, or you could face serious financial consequences. For this reason, it’s crucial that you know you can pay back your finance on time and in full. Some lenders may require you to pass an affordability check to see how much you can afford first. This can be done by requesting bank statement from you and looking at your income and expenditure. The kind of budget you have will also reflect which cars are available to you. 

Explore types of finance deal

In the UK, there are 3 main types of car finance agreement which tend to be the most popular amongst drivers. They are a personal loan option, hire purchase and personal contract purchase car finance deal. Each one has their own structure but generally you will agree to borrow a set amount or have the loan secured against a vehicle and then make monthly repayments with added interest until the end of an agreed term. It’s worth looking into each type of finance as you may be suited to one over another. The type of car finance deal you choose can also affect your ownership options, monthly payments, and ability to get approved. 

Dealer vs broker financing

When you think of getting a car on finance, you may think of finding a car you like at a dealer and then applying for finance on it. This can be a really straightforward way to get your car and save the hassle of shopping around. However, dealers can sometimes only have access to a limited number of lenders, and you may not be getting the best deal. An online car finance broker can be used to help get you a finance package from a wide range of different lenders. Brokers can compare deals on your behalf and select the cheapest finance package from some of the UK’s most trusted lenders. 

Get your documents together

If you are accepted for car finance, there are a few pieces of documents that you will need to provide. It’s worth knowing which documents lenders tend to ask for when you get a car on finance so you can be prepared. Usually, could be asked to supply proof of identity such as a driving licence or passport, proof of income through bank statements and a credit check.

Choose your car

When compared to buying with cash, for many people car finance enables them to get a better car. Car finance can help you get a newer car and pay for it in monthly instalments. The type of car finance agreement you choose, and your budget can affect the type of car you get. Car finance can be used to help pay for both new and used cars. If you want to keep costs low, usually used cars are much cheaper to finance than newer cars. However, car finance agreements such as PCP benefit from low monthly payments, even on brand new cars due to their structure. PCP deals don’t allow you to pay off the full cost of your chosen car and instead pay the price of depreciation to help keep costs low. However, if you want to keep the car, there is a large balloon payment to be paid at the end of the deal. 

Until next time.

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