If you’ve never had a car loan or been burnt by an expensive car finance deal, you may wonder how to get the cheapest deal possible. Car finance is a great way to spread the cost of owning your next car into affordable monthly payments. It also enables many people to get a newer car than they first thought. Buying a car is one of the biggest purchases you will make in life, so it’s important that you know which types of car financing are available and how to secure the best deal.
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Check Your Credit File
When you apply for any type of loan, credit, or finance, you will usually have to pass a credit check. Before you start applying, you should get into the habit of checking your credit file regularly. When you check your credit file, you should ensure all your information is accurate and current. If not, it can negatively impact your credit score! Your credit file will also show you any applications for finance you have made in the past and the outcome of these applications. You should ensure you recognize all the applications listed, as you could have been the victim of a fraudulent application in your name.
Increase Your Credit Score
If you are applying for a bad credit car loan, you may be worried about the likelihood of getting approved. However, you can spend some time increasing your credit score before you start applying. There are a few easy ways to increase your credit score below:
- Pay all your debts on time and in full.
- Never miss a financial payment and avoid making the minimum payment on your credit card each month.
- Use a credit card little and often to build up credit.
- Get your name on a mobile phone contract or utility bill.
- Register on the UK electoral roll to prove your address and verify your identity.
- You should only aim to use around 50% of your available credit in stores or on credit cards.
- Dispute any errors on your credit file.
- Open a range of credit, such as credit cards and car finance, to show you can manage fixed and revolving credit.
Save Up For a Deposit
For a car loan agreement such as Hire Purchase Car Finance, having a car finance deposit can be beneficial and increase your chance of getting approved for finance. Putting down a deposit for a car loan can lower your monthly payments and reduce the amount you need to borrow from a lender. This can help you save money in the long run. However, if you need a car in a hurry, many no-deposit car finance options are available with affordable monthly repayments.
Explore Different Car Finance Options
The most popular car loan types are a Hire Purchase option, a Personal Contract Purchase, and a Personal Loan.
A personal loan is usually provided by a bank or budling society and can be easier to obtain if you have good credit. It is really straightforward: You can use the amount for whatever you like, the loan is not secured against the car, and you can spread the cost across 1-7 years. Some people use a personal loan to pay off both their car and the first year’s car insurance and then pay back the loan each month with added interest.
A Hire purchase car finance agreement spreads the full cost of your chosen car into monthly payments with interest. The loan is secure against the car, so if you fail to meet your repayment deadline, the finance lender has the right to take the car away from you. At the end of the agreement and when the final payment is made, you will own the car and you will not need to make any more payments.
A personal contract purchase is slightly different. You are only paying off a percentage of your chosen car. This gives you more flexibility when the agreement comes to an end. You can use the car’s value as a deposit for another PCP deal, hand the car back to the dealer, pay the final balloon payment, and own the car. Monthly payments are lower than other options, which is a great choice for people who want to change their car more frequently.