Are you thinking of getting car finance but still have lots of questions about it? 🤔 Don’t worry because we’ll help you out! We’ve gathered the most Googled car finance questions so you can learn more about it and be more prepared when you start your car finance application. Let’s begin!
What is Car Finance?
This may seem like a basic question but it’s important that you have a full understanding of what car finance is before you sign a car finance agreement. This way, you’ll know what to expect from the lender as well as be ready for your responsibilities as a borrower.
Car finance is a financing arrangement where the lender, such as a bank or car finance company, will pay for the vehicle you want to purchase. In return, you would have to pay the lender back through fixed monthly instalments over a number of years, ranging from one to seven.
The shorter your car finance term, the smaller the overall interest you need to pay. Conversely, if you need seven years to pay back the lender, then you can expect that you’ll be paying more interest in the long run even if the monthly repayment amount is more affordable.
What are the Types of Car Finance Available?
There are several types of car finance arrangements. However, the most common ones are Hire Purchase and the Personal Contract Purchase. For Hire Purchase, you will pay a higher monthly instalment than the Personal Contract Purchase but by the end of your contract with the lender, the car is yours. No other payments are needed.
What’s different with the Personal Contract Purchase is that the monthly repayment amount is lower but you would need to pay a final "balloon payment" when your contract ends if you want to own the car. Otherwise, you may simply return it to the lender. However the car must still be in good condition, and you shouldn't have gone over the mileage limit. If either is the case you may be liable for an additional charge.
Am I Eligible for Car Finance?
Most car finance companies require applicants to be at least 18 years old. To give yourself the best chance of getting credit, you may want to ensure that you’re in good financial standing and that you have a reliable job where you can expect regular income to make the monthly payments.
It can also help if you check your credit score and credit report first before applying for car finance. If you have a low score or you don’t have enough credit history, consider working on those first so that you’ll have a better chance of getting approved by the lender.
What’s the Car Finance Application Process?
Up to now, there used to be so much paperwork to fill in in order to apply for car finance. You may even have to go to the lender’s offices to submit your requirements or wait for a telephone interview with a representative. It took a lot of work and waiting to know the result of your application. This is no longer the case with many companies now.
For example, with Carmoola, you only need to download the app on your smartphone and then begin the application process. Within the app, you will enter your personal details such as your name, address and other personal details, as well as verify your identity using your driver’s licence. Within a few minutes, the result of your application will be available. And you will know how much you are able to borrow and at what cost.
The whole application process with Carmoola is done online and through the app. You can even apply at 2 AM on a Sunday if you want since we offer automated car finance processing 24/7. It’s designed to be convenient, fast, and simple. Gone are the days of long lines and long waiting periods.
Do I Need to Pay a Deposit?
Paying a deposit is not always necessary, especially if the lender offers a zero deposit car finance deal. However, it’s more practical to set aside money for a deposit when buying a car. This is because you’ll be borrowing less money, and therefore, you’ll be paying less interest.
Also, with a deposit, your monthly repayment amount will be more affordable. If you can afford to pay a substantial amount for the deposit, then the better it will be for you because you’ll save more money in the long run. It also increases your chance of getting credit because the lender will see you as a lower-risk borrower who is more likely to keep up with the payments.
Can I Have Multiple Car Finance Applications?
There’s no rule against applying for car finance from a number of lenders but the real question here is should you? It’s not advisable to make several applications because it’s going to make you look desperate for credit. Lenders would assume that you’ve been declined by other lenders and that you might be a high-risk borrower.
Other than that, multiple car finance applications won’t be good for your credit score and credit report. For every application you make, the lender will conduct a hard check on your credit report and that will affect your credit score by a few points every time. So if you make a number of applications, your score could go down significantly, making it even more difficult for you to get approved for car finance. Research the different companies first and make one application only.
Is My Credit Score Important?
The short answer is yes. Lenders will look at your credit score because it reflects your credit history. If you’ve been a good payer and you have sufficient credit history, then you would have a high score. However, if you’ve been late in paying bills or you’ve defaulted on previous loans or you don’t have enough credit history yet, then your score would be on the lower end.
If your credit score is not that great yet, don’t be discouraged because there are steps you can take to improve it. Just know though that it’s not an overnight process. It’s important that you show the lenders that you are responsible when it comes to handling your finances and paying your bills on time every time. Avoid missing payments and make sure you check your credit report for errors and even fraudulent activities.
With these common questions answered, hopefully, you have a better understanding of car finance, the types of arrangements available, eligibility, and the application process. Be sure to check other articles on our blog to know more about it! 👍