Car Finance Hub: All Your Car Finance Questions Answered
Are you looking for a car finance hub to answer your questions? Here at Carmoola, we strive to provide you with helpful information on car finance so you’ll have an easier time deciding whether to apply for one, what kind of car finance deal to get, and how to choose the best car finance arrangement. In this article, we’ll help you by answering some of the common questions on car finance that many car buyers like you are asking. Let’s begin!
What Is Car Finance?
Put simply, rather that buying your car out right with cash, you usually pay a deposit, then pay the remainder over a set length of time in monthly instalments. Depending on the package you choose, you will then either own the car once all the instalments are paid, or you may have to pay a further lump sum in order to keep the car.
How Does Car Finance Work?
When you get car financing, you will have the opportunity to buy the car that you want without having to use up all your savings on one purchase. Instead, you will be paying the car finance company a fixed amount every month for a set number of years. Car finance is a type of credit agreement between you as the borrower and the car finance company as the lender.
What is Car Finance in Simple Terms?
Before we get into detail, if you are completely new to thinking about car finance, you might like to get a simple overview. This will help you explore the various options in more detail.
How Much Does Car Finance Really Cost?
When applying for car finance, you need to think about every aspect of the payments to get the real cost. Yes, the monthly payments make up the crux of financing, but there are other factors to consider. You'll likely need to pay a deposit, which you should include when calculating the full cost of finance. Beyond that, there is the interest rate, which goes a long way to determining how much you'll pay each month and the overall cost. You pay the interest on top of the amount borrowed. It also depends on the type of finance you get, be it personal contract hire, hire purchase or a straight loan.
Who Can Get Car Financing?
If you are at least 18 years old and a UK resident, you can apply for car finance. However, take note that there will be numerous factors that can affect your application. Your employment status, credit history and credit score will play a huge part in determining whether you can get car finance at a good rate.
If you are a young driver who wants to buy a car, you can strengthen your application by getting a guarantor who can back you up. Having a guarantor to vouch for you will help increase your chances of getting approved by the car finance company.
Can I Buy a Used Car?
Whether you want to buy a brand-new car or a second-hand vehicle, you can do so. Once you’ve been approved for car finance, you can choose the car you want and buy it. The good thing about car financing is you now have the chance to buy a better car because the payments are spread out over a period of time. If you were to buy with cash, your options would be very limited.
How Long is a Car Finance Contract?
Contract terms for car finance can range from one to seven years. The contract length depends on you. If you want to own the car as soon as possible, you should get a shorter contract term. However, this means you’re going to pay bigger monthly payments, although the overall payment will be much less because you’re paying less interest.
If you want more affordable monthly payments, you can choose a longer term. But you will be paying more in the long run because you’re borrowing money for a longer period. Whichever term you choose, make sure that you are comfortable with it and that your budget will allow you to make the monthly payments on time every time.
Can I Get a Payment Holiday?
Yes, since the Covid-19 pandemic, lenders must offer you a payment holiday if you are struggling to keep up with your monthly repayments. A payment holiday essentially pauses your payments for a period of time, in the case that you are struggling financially. There are several options on the different types of payment holidays, and the rules for payment holidays. We've covered the most common options in our full blog article.
Are There Penalties for Early Settlement?
It's not uncommon for some drivers to settle their finance early, either because they're buying a new car or simply want to clear the outstanding balance and own the vehicle outright. Some lenders may charge early settlements to pay the finance before the initial agreement term ends. Before signing any finance agreement, you should read the t&cs to see if the lender charges for early settlement and how much they're charging.
Do Car Finance Providers Have Great Customer Service?
One of the main purposes of the Financial Conduct Authority is to protect consumers, but are car finance providers really going above and beyond for their customers? In today's market, you should demand five-star service when making such a significant purchase, but what does great customer service even look like? Many consumers are opting to purchase their new car using some sort of car finance, but how do you know what the lender will be like in terms of customer service? Do you want to sit on the phone for an hour waiting to speak to someone? Probably not. You deserve the best, and if you need help, you should be able to get it quickly.
What's The Longest Term of a Car Loan?
Car loans seem to be getting longer and longer these days, and it makes sense because the longer the term, the lower the monthly payments. Most lenders have a set of standard terms you can choose from. Some common options you'll see are:
- 12 months
- 24 months
- 36 months
- 48 months
- 60 months
You can certainly extend your loan to a longer term, but you've got to consider if you really want to be driving that same car in 7 or 8 years! It could definitely decrease your monthly payments, but you'll also end up paying more interest back overall.
How Do I Get The Best Car Finance Deal?
With finance, it's difficult to compare your deal against your friends or family members, as their credit score will be different to yours and this directly impacts the rate you can get! Different lenders have different ways of understanding your financial profile, a more traditional lender may put a lot of emphasis on your credit score, whereas others will look at other aspects of your income and financial situation in order to try to get you the best rate possible. We've put together a great article to help you make sure you get the best finance deal, so have a read and don't get caught out by organising it last minute!
Is Car Finance Worth it?
The short answer is yes, car finance is worth it. But ultimately, it depends on your financial situation and what makes the most sense. Car finance is a more affordable way of getting a vehicle and spreading the cost over several months and years. It means you pay less upfront and instead make the payment each month towards the vehicle. For many drivers, it's the difference between getting a car for convenience and upgrading to a stylish car from a well-known automaker. Of course, the most important aspect is that you can comfortably afford the monthly repayments. If you can and it makes financial sense, getting car finance is definitely worth it.
These are some of the most common questions that car buyers ask about car financing. Hopefully, your questions have been answered as well. If you want to know more about car finance, feel free to check the Carmoola blog regularly. We post helpful and informative articles that will definitely help you make the best decisions on your car-buying journey.
And when you’ve found a car you like and you’re ready to apply for car finance with Carmoola, simply download the app and follow the steps indicated there. Since Carmoola processes everything online, you can send your application for car finance 24/7.