If you’ve never had a car on finance before or aren’t sure how the process works, the guide below could be exactly what you’re looking for. Getting a car through car finance doesn’t have to be confusing but there are things you could consider before you start applying and help give you a place to start. For example, car finance isn’t a one size fits all agreement and, in the UK, there are 3 main types of car finance that tend to be the most popular. We’re going to focus on a hire purchase agreement in the below guide but it’s worth exploring other options such as a personal loan or a PCP deal too.
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How does hire purchase car finance work?
Hire purchase is one of the most straightforward ways to get a car on finance. Within a HP agreement, you can put down a deposit and then you make monthly payments over an agreed term that equals the value of your chosen car with added interest. The higher the value of the car, the higher your monthly payments will be, or you can help reduce the loan amount by putting down a larger deposit. Once you’ve made all payments on time and in full, you have a small option to purchase fee to pay and then you can become the legal owner of the car. Before this point, the lender owns the car throughout the agreement and can take the car off you if you fail to stick to the repayment schedule.
How to get a HP car finance deal:
If you’re looking to get a hire purchase deal, there are a few factors that you could consider before you start applying.
Check your credit report
When it comes to getting any form of finance or credit, your credit score is really important. Most lenders will run a credit check on your file to see what type of borrower you have been in the past. You should check your credit file matches the information on your car finance application to help lender verify your identity and prevent any fraudulent applications. You should also make sure all your information is accurate and up to date as false information can negatively impact your current score.
Improve your credit score where you can
If you have a low credit score, you can be seen as more of a risk to lend to. If you’ve defaulted on your credit agreements in the past, lenders may be worried that you are more likely to do it again. Lenders may decline your car finance application or set a higher interest rate to helps secure the deal. If you have a bad score, you could consider improving it in the run up to your car finance application. You can do this by making all payments on time and in full, reducing high levels of existing debt, keeping your credit usage low or building a small credit history if you don’t already have one.
Prove your affordability
Another main factor to getting a car on finance is how much you can afford to pay each month. This is known as affordability and lenders will want to know how you can pay back your loan and with what money. Lenders will usually perform an affordability check on you by requesting bank statements. This allows them to see your income and expenditure and work out if you can comfortably afford to pay back your finance. Not only does this protect you but it also helps to lender to adhere to responsible lending practices.
Find the right lender
There are a number of ways you can obtain a hire purchase car finance. One of the most common ways to get car finance is through a dealership. You see the car you like and then apply for finance at the dealership. This can be a simple and effect way to get approved, but some dealers only have a limited number of lenders who may not be suited to your circumstances. Alternatively, you could consider an online car finance broker could be used to help you get the best deal from a range of different UK lenders. You then have the freedom to get the car you want within your budget from a reputable dealer.
Choose your car
You’ll be pleased to know when looking to financer a car, there are so many to choose from. Whether you’re looking to finance an automatic car or want to go all electric, there are more finance options available than ever. When car finance first came around, you could only get car finance on brand new cars, but you can also finance used cars now too! If you have a limited budget, getting a used car can make affording car finance that little bit easier and more accessible.
Unfortunately, car finance is never guaranteed it would be irresponsible of a lender to offer car finance to someone who cannot afford it. There are certain criteria you will need to meet before you can get a car finance approval and each lender has a different set of lending criteria. You could consider getting ore approved or checking your chances
of approval first before you start applying for car finance. Multiple hard search application son your credit file in a short space of time can negatively impact your credit score. Once you’ve found the lender that’s right for you, all that’s left to do is sign on the dotted line!