Thinking of getting a car on finance? Not sure where to start? Usually, the first step towards getting a car on finance is to apply online or at a car dealership. The guide below has been designed to highlight the steps you should take before you even consider applying. These factors can help you put your best foot forward before you apply and help to increase your chances of approval. It's worth remembering that car finance is never guaranteed, and lenders have their own criteria which you will need to meet before you can get approved for finance. Let's take a look at how you can prepare for your car loan application.
How do you apply for car finance?
You can obtain a car finance deal from a number of different routes. You can head straight to the dealer and see what lenders they have available for finance and which types of car finance they provide. Car dealers usually offer both PCP and hire purchase deals. You can also shop for both these agreements from online lenders and car finance brokers. Personal loans are usually supplied by banks or building societies and can be sorted over the phone or online.
1. Work out your budget
When it comes to getting a car on finance, the first thing you should do is work out your budget. Car finance requires you to meet monthly repayments till the end of the agreed term, usually between 3-5 years. It's important you can meet each car finance payment on time and in full. If you're working full time, it can be easier to get approved for a car loan but you can also get access to cars on finance on benefits as long as you can prove your affordability. Whatever your source of income, you should have a look at your income and expenditure and see how much you can comfortably afford for car finance. Most lenders will ask how much you can afford to spend each month and then you can shop cars within your budget.
2. Save for a deposit
There are many options for car finance without an upfront payment, but some deals can require you to put down a deposit first. Having more money to put in for your car finance deal can also work in your favour. It may see easier acceptances as it shows lenders good financial responsibility. The more you put in, the lower your loan amount will be. Taking out a smaller loan means you don't have to pay as much back and can help to reduce your monthly payments.
3. Improve your credit score
Your credit score is really important when it comes to lending money. Your credit score reflects how you've handled credit in the past and if you can be trusted to make payments on time and in full. If you've missed payments, you may find yourself searching car finance for bad credit, which can be possible but it may be harder to get accepted and increase your interest rate. If you're planning on applying for car finance, it can be a good idea to improve your credit score to help get you a more affordable car finance deal.
4. Research different agreements
Depending on what you want from your car finance deal, you may be more suited to some agreements over others. If you're not fussed about owning the car, both hire purchase and PCP have options where you can choose to own the car at the end of the deal. If you want to own your car from the start of the agreement and personalise your car, personal loans can be the cheapest way to borrow money and buy a car outright. Hire purchase can be better suited to people with lower credit scores as it's a form of secured loan. This means if you fail to repay, the lender can use the car as collateral and has the right to take the car off you.
5. Ask questions
Many people have reservations about getting a car on finance so that's why it's important that you're happy with your deal and the information you're submitting. If you're worried about the lender you are using, you can check their status with the Financial Conduct Authority and read reviews online before you apply with them. Don't be embarrassed to ask the lender or salesman as many questions you have about the car finance process. Only sign on the dotted line when you're comfortably with the deal in front of you.
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