Applying for Car Finance? 5 Things to Consider First

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Whether you’re looking for a new joy ride or a vehicle for your business, you may want to learn about the most suitable car finance options for your big purchase. While there is no shortage of packages, some aspects require thoughtful examination before you sign on the dotted line.

Plenty of questions can emerge in your mind regarding how to acquire car finance. Mostly in regards to who will help you get approved for credit, and if you will get approved at all.

Car finance certainly has its complexities. However, the following five factors will help break down some of the more intricate parts of financing a car.

Independent vs Franchised Car Dealers 

Independent car dealers have no official attachments to any particular car manufacturer. So, this is your best bet to see different makes and models all in one place. They are great for when you don’t have any specific brand preference.

However, with no relationships set with manufacturers, their prices are based solely on the used car market, which can fluctuate frequently. As a result, they could be expensive. They may also struggle to offer aftersales facilities.

A franchised dealer, meanwhile, offers new and used cars from top brands in an official capacity. Given the strong relationships with such manufacturers, you can expect them to provide better finance options and complete with more competitive rates, to make your car ownership dream realistic. 

Exclusive promotional offers can also be available to bring down the cost even further. Some of them even provide 0% financing for higher flexibility. Typically, franchised dealers also offer approved aftersales facilities for the brands in question.

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Credit Score

Finance companies will want to check your credit background to evaluate your ability to pay each monthly sum. For this, your credit score will play a big part, as it contains all the information about your history of credit. 

Be aware that missed payments or defaults can be a red flag for them, just as being close to your limit on things like credit cards can be. It’s also important not to have too many applications for credit in a short space of time. So, spread them out as much as possible, limiting yourself to no more than three over any six-month period.

Regardless of approved or disapproved, a hard credit check by lenders can leave a footprint on your record affecting your ratings. However, some agencies follow a pre-approved process and perform soft searches to verify your background. These are great for anyone not wanting their score to take a hit if not accepted.

Financing Options

Personal loans can be a standard solution. But, these are often expensive and out of reach for people with limited credit. A better alternative can be Hire Purchase (HP) and Personal Contract Purchase (PCP). 

These affordable car finance types have helped many car owners attain the vehicle they wanted or needed. 

If you choose HP, you will pay a monthly amount based on the deposits. You can take the car, but ownership will be complete only after fully repaying the full amount of the contract. That means you will lose your car if you fail to pay, so is something that should be carefully considered.

The option of PCP can sound more complex, but it is built for flexibility. Like HP, there is typically a deposit to be paid followed by a number of monthly payments. However, those payments tend to be cheaper, as a lot of the vehicle’s value is wrapped up in a balloon payment that is made come the end of the contract if you wish to take full ownership of the car. If ownership doesn’t interest you, you can hand the car back and look for a new one.

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Car Finance APR

The annual percentage rate (APR) stands for the yearly interest rate, which can vary from one lender to another. It affects the overall buying cost of the car, as well as your monthly payments. 

While calculating your monthly payment, lenders will consider a few factors: borrowed sum, interest rate, and the finance term. Online calculators can help you get a solid idea of how much this might cost, allowing you to hypothetically add a deposit and credit rating to see what your payments could look like.

Change of Decision

While payments made once a finance agreement is in place cannot be refunded, there are aspects that can give you a bit of breathing space.

If you’ve paid a deposit ahead of signing up to a finance agreement, but you decide to pull out before committing, you will get your deposit back. It can also be useful to check for any ‘cooling off’ periods, where the lender/dealer allows you to step away from the agreement in the first two weeks of it being active.

Purchasing a car can be a necessity or an aspiration. No matter which, you will have to meet specific eligibility criteria to fulfil them. The likes of 0% car finance availability, for example, for new and used cars and other such flexible methods, ensure you don’t have to give up on your goal. Still, it is essential to be careful about applying for credit, who it’s with and your ability to pay each monthly sum.

Before applying, a bit of shopping around for auto finance deals can prove immensely useful. You will learn about the best interest rates, the most affordable monthly payments, and much more.

It will also offer insight as to whether you’d prefer to purchase from someone who can offer you strong after-sales facilities to ensure your car is kept in good shape, and whether the overall support for your car and any future deals can work to your advantage.

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