Common car financing mistakes and how to avoid them
Getting a new or used car on finance can be really exciting! It allows you to get a car, usually a better car than you first thought and split the cost into monthly repayments. However, car finance can be expensive and is usually spread over a number of years so it’s important you get a car finance deal that’s right for you, whether you are searching for no deposit finance liverpool, or have been saving for a while to be able to give yourself as many options as possible. If you’re looking to get car finance for the first time or you’ve had a car loan in the past, you should be aware of common car financing mistakes and how to make sure you don’t fall into them.
- Not checking your credit score first
Whilst it is possible to get approved for car finance with bad credit, it can help to check and improve your credit score before you start applying for finance. Most finance lenders will require a soft search credit check on your credit file to see how you’ve handled repayments in the past. If your score needs a little help, there are a number of things you can do to get an instant boost. You should get into the habit of checking your credit score regularly and fixing any mistakes that are listed on your credit file. Fraudulent applications in your name, incorrect details on your file, and financial ties to people you don’t have credit with can all negatively impact your credit score. If you are looking to get car finance in the coming months, you can spend some time improving your credit score in the run up to increase your chances of getting approved and could get you a better rate.
- Choosing the car first
Many people have their dream car in mind, but it can help comparing a range of similar cars and sorting your finance deal before you get the car you want. When you choose a car at a dealership, you are limited to the finance lenders they have on board. However, you could choose a car finance broker or lender to help you’re your finance for you. A car finance broker has access to a wide range of lenders and compare rates on your behalf. You can then take your finance deal to a dealership near you and get the car you want!
- Not budgeting properly
When you apply for finance, you will usually be asked how much you can afford to pay each month. This number should be realistic and affordable for you each month. Overestimating your finance deal can lead to serious financial difficulty if you can’t make your repayments on time and in full. You should also factor in the cost of additional expenses such as fuel costs, road tax, car insurance rates, servicing and maintenance costs too.
- Not reading your agreement properly
Many people skip the boring stuff and sign straight on the dotted line when it comes to car finance. However, you should take the time you need to read through a car finance agreement before you commit to it. Car finance deals such as Personal Contract Purchase agreements are designed for the car to be returned to the dealer unless you pay the large ‘balloon payment’ at the end, this means they usually include milage restrictions and also additional damage charges in the agreement. Hire purchase agreements don’t have any mileage restrictions but you won’t own the car until the final payment has been made. It’s worth exploring different types of car finance deals to see which suits you best.
- Not valuing your part exchange for yourself
When you take out car finance, you can use your current car as a part exchange to help lower your costs. Dealerships and lenders will give you a vehicle valuation amount and you can use this as a deposit for your finance deal and take your car when you get a new one. This can be really straightforward; however, you could save money when you choose to value your car elsewhere. You can then sell your car elsewhere and use a cash deposit to get your next car on finance.
- Not having a deposit saved up
Many people search for car finance with no deposit but having a deposit can actually be really beneficial to your car finance deal. Having more money to put in for finance reduces the amount you need to borrow from a lender and can increase your chances of getting approved. Putting more down can also reduce your monthly payments and your interest rate offered which saves you money in the long run.