For many drivers, car finance is a lifeline when it comes to getting a car. If accepted by a lender for a finance deal it allows you to spread the cost of owning a car into affordable monthly payments.
Payments are made until the end of an agreed term, which is usually between 3-5 years. By breaking down the cost it means drivers can usually get a newer and better car than they would if they were paying for it in one lump sum with cash.
There are so many positives to financing a car, but it may not suit every driver’s personal situation. The guide below looks at the top 5 questions you should ask yourself to decide whether car finance is the right choice.
Can you afford it?
The most important question to ask before financing a car is whether you can actually afford it and it can affect your chances of being approved. It can be hard to find a lender who can offer guaranteed car finance because it would be unethical if they gave money for a car to someone who couldn’t afford to pay it back.
You will be required to pay for your finance each and every month on time and in full until the term is done. Due to this, you will need to set a budget for finance that is affordable.
You can take a look at your current income and your outgoings each month and decide how much you could comfortably put towards your finance payments each month. Your monthly budget and required loan term length can then determine how much you could possibly borrow from a lender.
Is your credit good?
If you have a low credit score, you may already be aware of the affect bad credit has on car finance deals. It can be harder to get approved for bad credit car loans as a low credit score usually indicates lack of credit or mishandling credit in the past.
Mishandling credit can be behaviours such as missed or late credit payments, high levels of debt, or relying on credit too much. This increases the risk to future lenders as you are more likely to default on your finance in the future, based on your previous behaviour.
If your credit is poor, it can be a good idea to improve your credit score in the run up to your finance application to help increase your chances of approval and get a better deal.
How often do you drive?
When considering car finance it can be worth thinking about how much you need a new car to get around. Car finance is a legal agreement and if you fail to keep up with payments, it can lead to more serious financial consequences.
With this in mind, it can be worth assessing how much you use your car and also calculating your annual mileage. Car finance agreements such as PCP are a form of secured loan. This means the lender owns the car throughout the agreement.
At the start of a PCP deal, you will need to set an annual mileage and if you fail to stick within the limit, you can be charged at the end of your agreement.
Which type of car do you want?
The beauty of car finance is it allows you to purchase a newer, more expensive car than you can usually afford. This helps to cast your net wide when looking for cars and choose the right car for you.
Your car should be fit for purpose and also fit in with your financial budget to make sure it’s the right decision for you. Making a list of the requirements you need from you next car such as fuel type, number of seaters, features and space and boot space can help to make the car buying process much easier!
Do you have a job?
Sounds simple enough but you’d probably be surprised how many people apply for finance without a job. Lenders prefer applicants who have been in employment for at least 3 months and have a full-time position.
Steady income reduces the risk of applicants defaulting on their finance in the future. If you’re worried about your job situation changing in the near future, finance may not be the best option.
There can be options for part-time workers, self-employed works and even those in receipt of benefits if they meet the required income amount.