Car financing can seem quite daunting, especially if you’ve never had finance in the past or if you’ve had a bad experience with car loans. You may have been burnt by car finance if you’ve made one of the most common car loan mistakes. Car financing and leasing is becoming more popular as it enables you to spread the cost of a new or used car into affordable monthly payments! But how can you avoid common car finance mistakes?
- Not knowing where you fall on the credit scale
When was the last time you checked your credit score? A recent customer survey from Refused Car Finance showed that 25% of their customers said that they didn’t know what their current credit score is even though they had applied with a company that specializes in bad credit car loans! Many car finance lenders will require applicants to pass a credit check before they are offered a finance agreement. For finance lenders, people with trouble meeting repayment deadlines in the past can be seen as more high risk. So, knowing your credit score and how to increase your credit score is crucial before you apply. Having a better credit score makes it easier to get accepted for finance and gives you access to lower interest rates and monthly payments.
- Not researching the different types of car finance
Car financing isn’t just black and white, there are a few different types of car loans that may suit some people better than others. It’s important that you research the different types of car loans available before you commit to one. For example, if you like changing your car more regularly and don’t want to own the car at the end of the agreement, you may be more suited to a Personal Contract Purchase which gives you 3 options at the end of the term. Alternatively, if you want to be the registered owner of the vehicle from the start, you could consider buying a car with a personal loan. A Hire Purchase finance agreement is great if you want to own the car at the end of the agreement but spread the cost of the car into affordable monthly payments with interest.
- Not sorting your finance first before you get a car
Many people make the mistake of seeing a car at a dealership and then sorting their finance there and then. But what if you secured the best finance deal first. Car dealerships have a limited number of lenders but by using a car finance broker you get access to a range of finance lenders and finance packages! You can use a car finance broker for free and they act as the middleman between you and the lender. They put your application in front of a range of lenders and secure you the best deal possible for your circumstances. You can then take your finance deal to any reputable dealership which is verified by the Financial Conduct Authority.
- Only focusing on the monthly payment
Opting for a longer finance term can decrease your monthly payments but it doesn’t make it cheaper in the long run. The longer you pay off your finance agreement over, the more interest you will pay overall. Car finance deals such as PCP also need to consider the rate of depreciation. Choosing a longer term means that the car has longer to depreciate and won’t be worth as much when you hand the car back or go on to sell the car in the future. Opting for the shortest term with the lowest monthly payment that you can afford each month can save you money overall.