You’re a lucky person if you can buy a car without taking out a car loan. Most of us rely on credit in order to make the initial purchase. Hopefully you’ll pay your car loan off at some point and own it outright, but at the beginning you will need the debt to afford something decent.
If you’re anything like I used to be, buying a car from a dealership can be a fairly daunting process. While the dodgy car salesman stereotype isn’t as relevant as it used to be, if you don’t know much about cars you can still feel vulnerable and intimidating. Then comes the moment when the dealer sells you the finance plan – they check your credit rating and if they accept you, you feel obliged to accept whatever rates and plan they offer you because you’ve already said you want the car. If they don’t accept you…well you leave and probably feel put off car buying for quite some time.
Thankfully it doesn’t have to be like this. Here are some surprising things I’ve learnt about car finance:
- You can arrange a loan through a finance company or a broker before you even go looking for cars. This means you know what your budget is and you don’t have to take the dealer’s loan offer. A broker can often get you a better deal than the dealer will too, reducing your debt and saving you money.
- A car loan is not a bad debt. After the credit crunch we were told that debt was bad, and we’d all been living on credit. While it’s probably a bad idea to rely on store cards and credit cards for all your spending, some debt is not only essential but also useful. Your chances of buying a house without a mortgage are slim, and for your mortgage application you’ll need a credit history. A previous record of taking out loans and repaying them creates a credit profile and helps lenders to judge you and see that you’re responsible with money. Just make sure you can afford the monthly repayments before you agree to the finance plan.
- The terms of your loan can be flexible. Some lenders have set guidelines for things like the length of time you have to repay the loan, but when you make an application, particularly through a broker, you should be able to have some say over how much you want to repay each month and for how long. This means the debt will be more suitable to your income and needs and you’ll be less likely to miss payments.
- Previous debts and bad credit are not necessarily a barrier to getting a car loan. If you just apply for finance at the dealership when you buy the car, you will be applying to whichever finance company they happen to deal with. And that finance company might have very strict rules about your credit history or income. There are lenders who consider all applicants and if you go to a broker before you go car shopping they’ll be able to find the best lender for your situation. Even those with negative equity on an existing car loan or who’ve been made bankrupt in the past can be accepted.
- Things like part exchange deals can make finance seem more complicated, but if you go to a decent car loan provider you should be able to ask their advice on all these matters. They’ll understand exactly how it works and what you need to do – this was a life saver for me as I had no idea about these things!
- You can repay your loan early, and you should have a couple of weeks from the day of signing to be able to return your car and pay back the loan without owing any interest (so basically, with no additional cost to you).
Knowing about the choice that I have when it comes to car loans and the flexibility that’s on offer made my last car purchase a lot simpler, and I now have a finance plan with a better interest rate which is much more suited to my needs and situations. And that means less debt and more money in my pocket!