Car finance is popular with many as it means you can have access to a vehicle without having to pay an upfront lump sum. There is a range of options to choose from to suit your circumstances, from PCP agreements to leasing, even car finance on benefits and for those with less than impressive credit scores. Before applying for your chosen type of car finance, here are a few common pitfalls to look out for so you can steer clear.
Not doing your research
One of the most common car financing pitfalls is not doing enough research to find a deal to suit you. Finding the perfect deal doesn’t have to be difficult, you can access various comparison sites online, and get more information about the type of agreement that you might prefer to suit your situation, for example, a PCP agreement, hire purchase, or applying for a personal loan at your chosen bank or financial institution. You should avoid opting for the first deal you see as you could be missing out on better alternatives elsewhere. Compare interest rates, repayment options, and terms to ensure you’re making an informed decision.
Overlooking total cost
Another pitfall to look out for is incorrectly calculating the total cost of borrowing. With car finance, you will likely be paying back a set amount to your lender each month – but you must remember it doesn’t stop there. There are other expenses to consider too, such as insurance payments, and the cost of maintenance and petrol. Running a car is more than just paying for finance, so ensure you’ve calculated all costs to get an understanding of whether you can truly afford it.
Neglecting credit score
Whilst there are lenders that will offer you car finance even if you have bad credit due to struggling to manage your debt in the past, it’s always helpful to try and improve your credit score before you apply for car finance. A good credit score will show your lender that you’re trustworthy and may result in lower interest rates, and therefore reduced loan costs overall. It will also put you in a better position when it comes to being approved for your preferred finance option. Try and improve your credit score by paying off existing debt and checking your credit report for errors to boost your chances of getting a good deal.
Not adjusting budget
It’s essential that you budget for your car finance payments. Failure to calculate how much you’ll be paying in terms of instalments back to your lender, as well as insurance, petrol, and maintenance costs may end up with you struggling to manage your cash. Before you apply for finance, determine how much you can realistically afford to spend on a vehicle each month. This way, you’ll be able to make a sensible and informed decision that suits your current situation – and you won’t have to worry about defaulting or affecting your credit score.
Not understanding terms and conditions
You should make sure that you’re totally clear about the terms and conditions of the agreement you’re signing up for before you rush into anything. Make sure that your lender sets out exactly what is expected from you – this could include how much you’re paying each month, as well as other fees like early payment and admin fees. Take your time to read through the conditions that apply to you to ensure you’re making the correct decision for yourself and your financial well-being.
