Use our UK Finance guide and learn by experience. We outline pitfalls so that you don't have to learn the hard way, as many of us often do.
Loans
Car Finance
Car Finance advice to help you get the best auto loan deal possible. Car finance (auto loans) is the easiest and most affordable way of buying a car whether you're in the market for a new or pre-owned vehicle. If you're looking to buy a car, you will more than likely need car finance to do so, and with so many finance options available to you, you need to know which type of auto loan will best suit your specific needs. As with all loan options, you will need a finance company to grant you credit in order to secure a loan and will have to repay them in the form of monthly installments.
To qualify for car finance, you will have to provide your lender with some or all of the following:-
- Favorable credit history
- Proof of income
- Proof of residence
- Valid drivers' license
- Proof of ownership if you're trading-in your current vehicle.
If you have no credit history you can still qualify for a car finance agreement as many lenders will finance first-time buyers. Another option is to have a co-signer on your car finance deal which, dependent on their credit history, can increase your chances of being granted a loan as well as possibly reducing the rate of interest your car finance agreement attracts.
Apart from being affected by your credit history, the interest rate on your car finance option can also vary depending on whether you're buying a new or pre-owned vehicle and the length of your loan term. The size of the deposit you lodge with your finance company plays a part in determining how much you are required to repay on a monthly basis, i.e. the larger your deposit, the lower your installments on the car finance deal will be.
Car finance agreements can have tenures of 36, 48, 60 or 72 months and can be carried out directly or indirectly. Direct financing exists where you obtain financing from your bank or other lending agency and indirect financing is when your car finance deal is facilitated by a car dealership. Usually the dealership will place a mark-up on the level of interest which your auto loan attracts. The shorter the term of the car finance agreement, the lower the rate of interest will be, although your monthly repayments will be higher because you are paying off the same amount over a shorter period of time. The best approach to adopt is to put down as large a deposit as you can afford at the beginning of your car finance agreement and to set your monthly installments as high as your budget will allow without over-extending yourself.
Car finance options out there include hire purchase deals, personal contract plans (PCPs), personal loans , manufacturers' schemes, zero annual percentage rate(APR) plans, company cars and remortgaging options. No matter which car finance option you decide on, almost all of them will require that the vehicle is comprehensively insured. This is because the vehicle is the security against which the car finance agreement is registered and, if anything should happen to the vehicle, the lender's ability to recoup their loss, i.e. by selling the vehicle, would be depleted.
When you have been granted a car finance option, you can trade-in your current vehicle as a down-payment on your new car. However, if you acquired your current car through a previous car finance deal and you are still owing funds on it, you will have to settle your previous loan in full before ownership can be transferred to the dealer accepting it as a down payment. If you owe more on your car finance agreement in terms of your current vehicle than the dealership is prepared to give you as a down payment on your new car, you will be in negative equity. This essentially means that you owe more on the vehicle than it is worth and, if the dealership allows, you will need to have your loan amount on your new car finance deal increased in order to cover the additional expense.
Ultimately, when it comes to choosing a car finance option, you want to narrow your options down to three or four different types of car and do as much shopping around as possible in terms of APRs and payment plans. Try to buy your vehicle at a time when dealers are doing their best to attract sales by offering substantial discounts or rewards on car finance deals, but always read the fine print, making sure you understand in full detail everything presented to you in black and white. And always remember to do your level best to not over-extend yourself in terms of repayments as being in default may end up costing you your car as well as soiling your credit record.
