Getting a car on finance is a great way to spread the cost of owning your next vehicle. More drivers than ever are choosing to finance a car due to the flexibility of payments and the ability of paying over a term that suits you! Before you can get a car on finance, you will need to be approved by a finance lender. If you have bad credit or have ever had a car loan before, you may be wondering what the chances of acceptance are. The guide below looks at the top 5 factors that you can consider before you even start making applications with lenders.
It’s always worth remembering that car finance is a legal agreement and at the end of the day, the decision is ultimately the lenders hand. You should be wary of any company offering guaranteed approvals as they usually use high interest rates to secure the deal or can even charge customers for using their service.
Check your credit report.
Your credit history is really important when applying for any kind of loan or finance. Lenders will usually ask to perform a credit check on you and use your credit report and credit score to determine the level of risk. Based on your previous behaviour of how you have handled credit and whether you can be trusted to pay on time and in full, lenders will decide whether to offer you finance or not. Before you apply, you should get into the habit of checking your own credit report and score. Make sure all the information on your credit file is accurate and up to date as misinformation can be negatively impacting your current score.
Have a small deposit ready.
A deposit for car finance means that you put money down at the start of your deal which helps to reduce the loan amount. From a lenders point of view, it means you don’t need to borrow as much from them and reduces the risk of not getting all their money back. As well, as showing good financial management to the lender. For the customer, it can help to decrease your interest rate and can lower monthly payments too.
Check the lenders criteria.
If you’re wondering what your chances of approval are, it can be a good idea to check your car finance eligibility with different lenders. You can do this through soft search checkers that won’t affect your credit and gives you an idea of acceptance rates. Each lender can have their own criteria, and, in some cases, you may be better suited to some lenders over others. Common criteria that lenders use is that the applicant must be over 18 years old, can prove their affordability, are not currently bankrupt and have lived in the UK for over 3 years. If you feel like you would meet their criteria, it could give you a better chance of being approved and help to save time.
Research types of car finance.
In the UK, there are three main types of car finance which tend to be the most popular. If you are struggling to get approved due to bad credit, you may not be suited to a personal loan as they are usually reserved for those with the best credit scores. Both PCP and Hire purchase may be better options but some lenders can charge higher interest rates with PCP deals if your credit history is poor. Hire Purchase may be a better option and you may see easier acceptances. HP is a form of secure loan which means the lender owns the car throughout the deal, this helps to reduce the risk as they can use the car as collateral if customers fail to pay.
Look after your current finances.
Before you take on any more credit, you should review your current finances and make are you can actually afford to get a car. Your finance budget should be realistic and affordable and it’s worth remembering that you will need to be able to meet each and very payment over a number of years. To help improve your credit score and also make your loan more manageable, it can be a good idea to reduce any existing debt first and also make any current payments on time.