If you’ve never bought a car on finance before you may have heard some of the common car finance myths. From not being able to get approved with bad credit to only being able to finance a new car – some of these myths are simply not true. The guide below has been designed to abolish these misconceptions and figure out the truth. Firstly, we look at how car finance works and then do a bit of myth-busting with the top five most common car finance myths.
What is car finance?
Car finance allows you to borrow a set amount from a finance lender to pay for your next car purchase. Car finance falls into a few different agreements and you may be better suited to one agreement over others, depending on what you want out of your car finance deal. Car finance is never guaranteed, and some people unfortunately won’t meet the lenders criteria.
However, car finance agreements have been more accessible to people with adverse credit, low income, or no employment status in recent years. Car finance payments are usually paid back each month with added interest until the end of an agreed term. Let’s take a look at the most common car finance myths and why they aren’t true.
1 – You can’t get car finance with a bad credit score
One of the first factors that a potential lender may look at is your credit history. They can do this by requesting access to your credit file and to see where your credit score stands. A better credit score usually reflects a history of borrowing and repaying on time and in full. If you have missed payments in the past, don’t have a credit history or have high levels of existing debt, you may find yourself with a low credit score.
A bad credit score can put some lenders off as you are higher risk to lend to. However, more specialist bad credit car finance lenders have entered the finance market in recent years. These specialist lenders focus on affordability rather than your past mistakes and if you can prove you can afford finance, you can have more options available to you.
Photo, Fortune Vieyra.
2 – You can only get finance at a car dealership
When you think about getting a car on finance, the most obvious way to sort your finance is through a car dealership. It can make sense to find a car you like and sort the finance there and then. However, you can now sort finance through a range of different avenues. You could obtain personal loan direct from the lender or use an online car finance broker who can help match you with the most suitable finance package. Car finance brokers act as the middleman and have access to a whole range of different lenders at once. This can be good for you if you have bad credit as they can find the best deal for your circumstances without you have to apply with a number of lenders.
3 – You have to have a deposit
Some car finance deals may require you to put down a deposit at the start of the agreement in order to secure the deal. However, if you need a car in a hurry due to a car accident or don’t want to touch your savings, there are many 0 deposit car finance deals with affordable monthly payments that you can benefit from. If you want to reduce your loan amount you could consider saving up for a deposit. Or alternatively, if you have bad credit, sometimes having a deposit can show lenders that you are financially responsible and can help to secure you a finance approval.
Photo, Elena Kuchko.
4 – You can only finance new cars
When car finance was first introduced, it was typically only available on brand new cars. There are some car finance agreements such as leasing that can only be sued on new cars but there are many options to finance both new and used cars. Usually, a used car has to be less than 10 years old at the end of the deal so it’s’ worth checking the age of the car you want to finance first. If you want to benefit from lower monthly payments, opting for a smaller loan on a used car can be a great way to make your deal more affordable.
5 – Car finance harms your credit score
It’s a common misconception that getting a car on finance is damaging to your credit score. However, this is not true. Car finance can only harm your credit score in a negative way if you make multiple application for finance in a short space of time or if you fail to stick to the terms of your credit agreement. Car finance can actually be used to boost your credit score by meeting all your repayments deadlines on time and in full, along with any other financial agreements you may have.
