Are you considering getting a car in finance? Don’t get caught out by these common pitfalls which could cost you money. Car finance is increasingly becoming the number one way for drivers to afford a car and pay for it over an agreed term. By splitting your payments into affordable monthly installments, you can usually finance a newer and better car than you would with cash alone! There are so many benefits of getting a car on finance so be prepared by brushing up on these common finance mistakes to avoid getting caught out.
High interest for bad credit drivers:
Your credit score can impact several things when it comes to finding finance for a car. A low credit score can make it harder to get approved for finance and also affects the interest rate you are offered. Higher interest rates for bad credit applicants are used by lenders to secure the loan and lessen the risk. A common mistake drivers make is not checking their credit score before they apply for finance and increasing their score if they need to.
Securing finance at the dealer:
Whilst dealer car finance can be quick and easy to secure finance on a car you like, you may be limited to the lenders on their panel. You could consider sorting your finances first and selecting the car second. One of the best places to get a car on finance is a car finance broker. They can help you find the best finance deal from a wide range of lenders. You secure a finance deal first that suits your budget and then can find a car you can afford from any trusted dealer in the UK!
Choosing a high-depreciating car:
When you finance a car, you must consider depreciation. Depreciation is the difference between how much your car is worth when you buy it to how much it’s worth when you come to sell it. A highly deprecating car means you can lose out when it comes to selling your car.
Brand-new cars can lose up to 50% of their value in their first year of ownership so it can be worth researching cars that depreciate slowly. When you choose a highly deprecating car, you run the risk of owing more finance than your car is worth which is called negative equity. Typically, used cars depreciate at a lower rate because they will have taken the biggest hit already in the first couple of years.
Buying the first car you see:
Getting a car on finance is a really exciting time and if you’ve been struggling to get approved, it can be easy to jump at the first car you see. However, it’s important the car you buy not only suits your budget but also is fit for purpose. Buying a car can be a big purchase and you should always take your time and make an informed decision before signing on the dotted line.
If something doesn’t feel right, you don’t understand any aspect of the finance, don’t be scared to ask as many questions as you need, and never feel pressured by the dealer to make a rushed decision.
Choosing the longest loan term possible:
You can choose the loan term that suits your monthly budget, and it can be tempting to choose the longest term possible, when you spread your loan over a longer period, you will notice your monthly payment will decrease.
Whilst a longer term can mean lower payments, it also increases how long you pay interest. This means overall, you may end up paying way more than you need to. You should try to choose the shorted loan term with the most affordable monthly payment for your situation.
