Car finance is a great way for drivers to get a car and spread the cost into affordable monthly payments. As a reputable car finance broker, we help people every day get the finance deal that’s right for them. Using a car finance expert like us means you don’t have to be proficient in all things car finance but there are a few common car finance mistakes you should avoid making. Before you hit the apply now button, read the below article on how to avoid making these common car finance mistakes.
1. Not checking your credit report.
Your credit score is very influential when getting a car on finance. Before applying for finance or credit, you should always check your credit report. You’ll get an insight into your current credit score and the likelihood of being approved for finance again. Car finance lenders like to see applicants who have a strong history of being able to make payments on time and in full. It can be easier to get car finance with good credit as you are usually less of a risk to lend to. If you find yourself with a low credit score, we recommend taking some time to better your credit score before you apply for finance.
2. Not having a deposit saved up.
All of our car finance deals come with no deposit to pay. However, having a deposit to put down for car finance can work in your favour. Firstly, if you’re struggling to get approved, it could help to instil more trust with the lender as a deposit can show good financial management. Having a deposit to put down for car finance also reduces how much you borrow from the lender. The more money you put in, the less you have to pay back. This is because the deposit comes off the total loan amount and helps to lower your interest rate or make your monthly payments cheaper.
3. Only focusing on the monthly payment.
When you’re shopping around for the best car finance deals, it can be easy to get carried away with which deal has the lowest monthly payments. However, low monthly payments don’t always mean you’re getting the cheapest deal possible. For example, PCP car finance deals are attractive because they offer low monthly payments but there is a large balloon payment at the end of the agreement. This doesn’t necessarily mean you are getting the best deal because you’d need to fork out to pay for or refinance the balloon payment. When comparing car finance deals, you may notice choosing a longer loan term can reduce your monthly payments. However, this means you are taking longer to get the loan paid back which means you pay interest for longer too.
Use our car finance calculator to find the right term length for you.
4. Not exploring different finance options.
Many drivers make the common car finance mistake of jumping at the first finance deal they are offered. However, the agreement you are offered may not be the best one for your situation. Did you know in the UK, there are 3 different ways to finance a car? They are a hire purchase deal, a Personal Contract Purchase and a Personal Loan option. Each car finance agreement has its criteria and structure so it can be worth exploring each in more detail to ensure you make an informed decision regarding car finance.
Find out which type of car finance is best.
Hire Purchase:
☑️ Finance is spread into equal payments over the term.
☑️ Fixed monthly payments and interest rates.
☑️ Available on new and used cars.
☑️ No deposit is needed.
☑️ Bad credit friendly.
☑️ Adjust the term to suit your budget.
Personal Contract Purchase:
☑️ Low monthly payments with a balloon payment at the end.
☑️ More flexibility at the end of the deal.
☑️ Change your car more regularly.
☑️ Fixed interest and monthly payments.
☑️ You don’t need to own the car.
☑️ You’ll need to agree to an annual mileage.
Personal Loan:
☑️ Competitive interest rates.
☑️ Not a secured loan.
☑️ Fixed monthly payments.
☑️ You’ll own the car from the start.
☑️ Spread your repayments for up to 7 years.
☑️ Interest rates can be lower than other options.
5. Not comparing the best deals.
Getting a car on finance can be an exciting time and it can be easy to jump at the first finance deal you’re offered. However, you may not be getting the best deal possible. This is where we come in! UK Car Finance are a reliable and reputable car finance broker who can help you find the best deal in an instant! You don’t need to waste time applying with multiple lenders to get the best deal. Instead, let us do the leg work for you. We have a panel of trusted UK lenders and we can help match you with the most suitable finance package for your situation. What’s more, if one or more of our lenders wish to offer you finance, we’ll help you get the car finance deal with the lowest APR offered.
6. Getting carried away with optional extras.
When you buy a car on finance from a dealership, they will usually try to sell you several add-ons and extras. Salespeople can be rewarded with financial incentives if they convince you to take on these optional add-ons. There is a range of add-ons you may be offered which can include extended warranties, GAP insurance, technology packages and vehicle paint protection. There’s nothing wrong with adding these extras on if you need them but it can make it easy to sway from your budget and spend more than you had planned on car finance. The number of extras you add to your car finance deal, the more you could pay in interest too.
How to lower your cars running costs
7. Not considering the running costs of a car.
A common car finance mistake is not considering the full cost of running a car. When you have a car, you must pay for its upkeep such as fuel costs (or the cost of recharging an EV), road tax, car insurance and maintenance costs such as regular servicing and MOTs. Get ahead of the game and research cars within your budget to see what their typical running costs would be. The most expensive costs when it comes to running a car can be your car’s insurance premium and fuel costs.
8. Not reading the small print.
If you’re at that point in your car finance journey where you’re ready to sign the paperwork, take a moment to get to grips with your finance agreement first. You’ll no doubt come across lots of car finance jargon, so get ahead of the game and read our guide to car finance jargon. Many buyers are victims of signing a car finance agreement without fully understanding the terms and conditions of their agreement and it can be costly further down the road.