Most common car finance mistakes

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If you’ve never taken out car finance before then it can be a daunting experience, or if you’ve had car finance and make a couple mistakes during the finance process, you may be wondering where you went wrong. If you are considering taking out a car loan, you should be aware of the most common car finance mistakes before you start applying.

  1. Not knowing where you fall on the credit scale

Many people don’t check their credit score as often as they should. This can mean you aren’t sure about your chances of getting accepted for finance, if you are applying for bad credit car finance then you may be worried about being declined. The best thing you can do is check your credit file before you start applying. You can check your credit score online for free using a reputable credit referencing agency such as Experian or Equifax.

  1. Work out your finance budget before you apply

Many people work out their finance budget but don’t include other car payments you will need to factor in. Car finance is great as it is a more affordable way to spread the cost of owner a newer car. However, if you are working out how much you can afford to pay for finance each month, make sure you aren’t selling yourself short. If you regularly miss payments, you could risk having the car taken away from you if the loan is secure against the vehicle and you credit score will be negatively impacted. You should factor in additional costs that you will need to pay for such as car insurance, road tax, breakdown cover, fuel costs, maintenance and repairs and more!

  1. Sort your finance first

It’s a common myth that car finance can only be offered by a car dealership. However, there are many online car finance brokers such as Refused Car Finance, who help people get approved. You apply on their website first, then they match you up with the most suitable lender from a wide range of options. You can then get the car you want within your budget from any reputable UK dealership. This way, you can walk into a dealership, knowing that you’ve already got the best deal for you!

  1. Not opting for the shortest possible loan term

When you take out a car loan, you can spread the cost over a number of months. The longer you pay back your loan over, the less money you will pay each month. However, paying your loan of longer, means in the long run you will pay more interest. Your monthly payment may be low, but your overall loan will be higher. Were possible, try to opt for the shortest possible loan term. This is also good if you would like to change your car more regularly. If you are opting for a new car too, cars depreciate quicker in their first few years, so when it comes to selling or getting rid of your car at the end of the agreement, you won’t be able to sell it for as much if you take your loan out over a long period.

  1. Choose the best financing options for you

Many people still think that car finance is one agreement that is black and white, however, in the UK there are 3 different car finance agreements which are the most popular. Each of them is different and can suit some individuals better than others depending on what is important to them, such as ownership of the car, a secure or unsecured loan and how often they can change the car. You should never accept the first car loan you are offered. Do your research, visit dealerships, look online and shop around. If you are making multiple online applications, try to stick to soft search applications only. This is because multiple searches on your credit file in a short space of time can harm your credit score. Also, if you’re unsure of any of the wording or phrases used in your car finance agreement, don’t be afraid to ask as many questions as you need before you sign.

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About Editorial Team 85 Articles
Watch My Wallet has everything you need to know about money, written by real people who’ve been there. Inspired by the philosophy of Early Retirement Extreme (ERE), our goal is to make informed decisions about our finances in order to achieve financial independence.