5 questions to ask yourself before taking out car finance

Taking out a car finance deal can be a really exciting time! You can get the car you want and pay for it in affordable monthly repayments over a number of years. There is a lot of uncertainty around car finance and how it works but for many drivers it can be a lifeline to getting the car they want. If you’ve never has a car on finance before or have chosen the wrong agreement in the past, you may be wondering where to start with a car loan. The guide below has been designed to look at the top 5 questions that you should ask yourself before committing to getting a car on finance.

1.      Which car finance agreement is right for me?

If you’re looking to get a car on finance, you may think it’s a one size fits all agreement. However, in the UK, there are three main types of car finance agreements that tend to be the most popular. They include a personal loan option, hire purchase car finance and a personal contract purchase (PCP) deal. You could be better suited to one form of finance over others. For example, a personal loan can be the most cost effect way to fund a car, but the best rates can be better suited to those with good credit score, Alternatively, PCP deals can be one of the cheapest used car finance agreements as monthly payments tend to be lower but there is a large final payment to make if you wish to own the car. It’s worth exploring each car finance deal in more detail.

2.      Can I afford a car on finance?

When it comes to car finance, affordability is so important. Car finance is a legal agreement between you and the lender and failing to stick to the terms of your agreement because you can’t afford it, it can lead to serious financial implications. It’s worth taking a look at your income and expenditure before you start applying for finance to see what your monthly budget would be. Your monthly budget can then determine what type of loan amount you can afford. Many lenders also require you to pass an affordability check anyway which can be done by them requesting bank statements to prove your income.

3.      Is my credit good enough for car finance?

If you’re looking for no credit check car finance, then you may be out of luck. One of the checks that are done for car finance is a credit check when you apply for finance. Nowadays, they tend to use a soft search though which does not affect your current credit score and isn’t recorded on your credit file either. Car finance lenders just want to know how you’ve handled credit in the past and your credit score can reflect this. A low or bad credit score usually indicates that you’ve had problems in the past making repayments, have no previous borrowing history or high levels of debt. It can be easier to get accepted for a car finance deal with better credit and could also get you a better deal. It can be worth improving your credit score in the run up to your application to increase your chances of approval.

4.      Do I want a new or used car?

There are so many advantages of both new and used cars. For many people, it’s a no brainer that their next car will be a brand new one. You get to modify it as you like and choose the sec that suits you and also finance car that’s only ever been driven by you. However, brand new cars can be very expensive and unless you’re getting a new car on PCP, it may not be affordable froe everyone. Used car finance however are also becoming more popular than ever and drivers are benefitting from an affordable finance deal on a car that costs less to purchase and also depreciates at a slower rate than brand new cars.

5.      How long do I want to finance a car?

Getting a car on finance means you can spread the cost of your chosen vehicle into monthly payments to an agreed term. Usually, car finance deals last between 3-5 years but can be tailored to suit your needs. When you take the finance over a longer term, your monthly payments will be lower. However, it can mean that you take longer to pay off your finance and also increase how much you pay back in interest so it might not be the cheapest way to finance a car. Where possible, you should try to find the shortest loan term but with monthly payments you know you can afford to meet each month