Car finance is one of the most popular ways to fund your next vehicle, with over 82% of people in the UK choosing to finance their next vehicle instead of buying. Over the years, there have been many myths surrounding car finance which can confuse buyers and put people off. UK Car Finance, a car finance provider, based in the North East, have put together a list of the most common car finance myths and the actual truth behind them!
Myth: Car finance ruins your credit score
Multiple searches on your credit file can harm your credit score. A ‘hard search’ shows on your credit file and lets lenders know when you have applied for credit and whether you were accepted or not. This can indicate to lenders that you are desperate for finance. If you are shopping around for car finance online or within a dealership, you should always use a car finance soft credit check. A soft search is really handy as it checks your credit score without leaving any footprint on your credit file. Online car finance providers will usually promote their soft search credit check, as it benefits both them and you!
Myth: You need a deposit
You don’t necessarily need a deposit. Not all car finance deals require you to put down a deposit; this completely depends on the finance lender! There are many finance providers who offer no deposit car finance. No deposit finance is really handy when you don’t have any savings to put forward, or you just want to spread the cost of your finance deal! However, a deposit can be beneficial as it can lower your monthly payments and can also reduce the possibility of negative equity.
Myth: You can’t pay off your car finance early
In most finance agreements, you are able to settle the amount you owe at any time. When you are singing your car finance agreement, make sure you read the terms and conditions and understand the process of early resettlement before you commit to anything. With some finance lenders, there may be some additional charges for paying your loan off early. So, make sure you know the implications before you pay it off.
Myth: Car finance is a slow process
Car finance within a dealership could sometimes be a slow process as you will usually meet with a salesman, discuss your needs, provide your details, run a credit check, provide proof of documentation, (hopefully) get accepted and then choose your car. However, these days an online car finance application can take around 2 minutes and most finance providers will ring you as soon as possible, and proofs can even be verified by email if the lender allows it. Many car finance applications have been approved on the same day!
Myth: You can only get a new car on finance
Many people believe that car finance is only available on brand new cars, but this isn’t the case! When you get your car finance from an online car finance provider, you can use your loan at any reputable Financial Conduct Authority approved car dealership, whether it’s a new or used vehicle!
Myth: You can’t apply for finance with someone else
It is possible to make a joint application for car finance. There are two sides to a joint application. With your partners or family members permission, you can add them to your application to strengthen it. Your partners income could be taken into account depending on which finance lender you get approved with. If your credit score is low and your partners are higher, this can help your application. However, if your partner has bad credit, a joint application will make you financially linked to another person, and this can drag your credit score down. Make sure you’re completely sure before signing up to a joint application.
Myth: You can only get finance from a dealership
Many people still think you can only get finance for a car when you visit a dealership, but that’s not your only option. You can feel pressured into committing to a finance deal when in a dealership so make sure to shop around yourself. You can even sort your car finance deal before you even visit a dealership! Many online companies allow you to work out how much you can afford for car finance using a no obligation car finance calculator before you even apply! With many online car finance providers giving you the option to shop around for your finance first. All you need to do is apply online, get approved by one of their trusted lenders and use your finance deal to walk into dealership just like a cash buyer!
Myth: You can make modifications to your car
Within a finance agreement such as hire purchase or personal contract purchase, you are not the legal owner of the car until you have made all of your repayments. This means that you are not entitled to make any modifications yourself without checking with your lending company first. Within your finance agreement, you may be signing up to a no modifications policy which they do not allow. If you make modifications without clearing if, with your finance provider, you could be charged additional penalties at the end of your contract.
Myth: Car finance gives you negative equity
A car finance agreement such as personal contract purchase is usually based on the idea that at the end of your agreement you won’t have any negative equity. The car you get finance for should be worth more than the guaranteed future value (GFV), so at the end of the agreement, you should be able to use the leftover as part of the deposit for your next vehicle! Also, if you are looking to refinance before you have completed the full term, you may have negative equity to carry into your next finance deal.
Myth: If your credit score is bad, you can’t get car finance
This is one of the most popular myths that people do believe. Many people don’t even bother applying for car finance if they have bad credit. There are many car finance providers who specialize in helping people with bad credit! Your interest rate is likely to be higher than other car finance agreements, but if you have had trouble repaying your debts in the past, then lenders can see you as more of a risk. If you’re worried about bad credit, there are many things you can do to easily improve your credit score in the run up to your car finance application!