Buying a car can be one of the biggest purchases you can make so it’s crucial that you get it right! Getting a car on finance enables you to spread the cost of a car into affordable monthly payments with added interest. There are a few factors which you should consider before you sign on the dotted line for a car loan. Taking out a car loan is a legally binding contract and not meeting the conditions set out at the start of the agreement can have serious financial repercussions. With this in mind, let’s take a look at the things you should consider before taking out a car loan.
1. Review your credit score
It’s not impossible to get accepted for a bad credit car loan but it can be easier if you have a good credit score. Having a better credit score also gives you access to lower interest rates which reduces the amount you will pay overall. You should regularly check your credit file and your credit score to see where you stand. You should also make sure all your information is up to date and there are no mistakes on your credit file as this can affect your score.
2. Don’t just focus on the monthly payment
When taking out a car loan, many people solely focus on the monthly payment offered. For many people they want to see the lower, the better. You can reduce your monthly payment by paying your finance off over a longer period. However, extending the payment period increase the number of months that you will pay interest and means you will pay more in the long run. You should try to take the lowest term with the most affordable monthly payment for you. Remember that you need to meet the payment deadline each month so never take out a loan that you can’t afford to pay back to avoid financial stress.
3. Explore different types of car loans
There are 3 main types of car loan in the UK which tend to be most popular. A personal loan, Hire Purchase car finance and personal contract purchase option. Each of these loans can suit different people depending on what they want from their car finance deal. For example, if you want to own the car at the end of the agreement, Hire Purchase may be more suited to you! You make monthly payments to cover the cost of the car and when the final payment is made the car is yours! A personal loan can be harder to obtain if you have bad credit but can be one of the cheapest ways to spread the cost of owning a car. Personal Contract Purchase only covers the pay for part of a vehicle and makes it easier if you want to hand the car back after using it for a number of years. You should explore all finance options before you commit to one.
4. Check car costs of different make and models
Before committing to your dream car on finance. You should consider a few different makes and models and compare how much they will cost you. Many people don’t factor in how much it will cost to insure their chosen car and your car insurance can be pretty expensive if you are a first-time driver. When owning a car, you will also need to factor in road tax, fuel costs, yearly MOTs, regularly servicing, breakdown cover and unexpected repairs.
5. Shop around for the best deal
Applying for multiple car loans can negatively affect your credit score if lenders are performing hard searches on your credit file. You should shop around for the best deal possible and stick to soft searches only, which aren’t recorded on your credit file. Alternatively, you could consider using a car finance broker to help sort your car loan for you. A broker acts as the middleman between you and the lender. They put your application in front of a range of trusted lenders and help select the most affordable and best finance package for you!
