carIf you’re applying for a car loan, you could be wondering how you can get the best deal possible. If you’ve been refused car finance in the past, then you may be worried about getting accepted too. However, there are many options available today and car finance is now more accessible than ever!
Check Your Credit File
The first thing you should do before applying for any car finance or loan is check your credit file, especially if you are applying for bad credit car finance. Your credit file can be a good indication on the likelihood of getting approved and also what you need to do to increase your credit score. You can check your credit file online for free using a reputable credit referencing agency such as Equifax or Experian.
When you check your credit file you should look for any mistakes or any information that isn’t accurate or up to date. Having incorrect information such as an address that isn’t the most recent can impact your credit score. You should also check all your credit applications which will be listed on your credit file. Many people in the UK are victims of fraudulent activity on their credit file which can negatively impact your score. You can fix any mistakes or report anything on your credit file to your credit referencing agency.
Shop Around for The Best Deal
Many people still believe you can only get finance within a car dealership. However, there are many online finance brokers who help you get the best deal for you from a range of different lenders. You can then walk into a dealership just like a cash buyer with your finance already sorted.
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You can make multiple car finance applications to get the best deal however you should stick to soft search applications only. Most lenders websites will tell you if they are going to perform a credit check on your file and if it will be a hard or soft search. A hard search will be recorded on your credit file and multiple hard searches in a short space of time can negatively impact your credit score. If you are shopping around for the best car finance deal, make sure you stick to soft search applications only.
Explore Different Finance Options
In the UK, there are a few ways in which you can finance a car. The 3 main types of finance include a personal loan option, Hire Purchase and Personal Contract Purchase.
A personal loan can be used for pretty much anything and is a great way to fund your next car. Once accepted, you will get a lump sum into your bank account which you will pay back each month with interest. This means you can buy the car outright from a garage or private seller and you will be the automatic legal owner of the car. This means you can sell it at any time with no implications. You will however still have to pay back the loan each month if you decide to sell the car early.
This is one of the simplest ways to fund your next car. You are in theory hiring the car from the finance company until the end of the term. The loan is secured against the car and you will make payments each month till the end of the agreed term. Once the last payment has been made, the car is yours and you become the legal owner. A loan that is secured against the car does mean that if you miss payments then the car can be taken from you.
Personal Contract Purchase
This type of loan is similar to Hire Purchase but you have 3 options at the end of your finance agreement. At the end of the agreement, you can hand the car back and walk away from the agreement, use the value of the car as a deposit for a new car or pay the balloon payment and become the owner of the car.
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Work Out Your Monthly Budget
Your monthly budget is really important as it can determine the maximum loan you can afford. You should set a realist budget that you know you can afford each month. If you fall behind on any payments, this can massively impact your credit score and if you choose a loan that is secured against the vehicle, you could risk repossession.
When you work out your monthly budget, you should also factor in any other costs that are included in owning a car. For example, you will need to think about car insurance, road tax, breakdown cover, fuel costs, parking charges, maintenance such as service and MOT, unexcepted breakdown costs. You should factor these additional costs into your monthly budget.