Before you apply for car finance, you should probably ask yourself, “how do I prepare for a car loan application?” 🤔 With six million people in the UK choosing to buy their car through finance, spreading the cost by paying in instalments is one of the most popular ways to get the keys to your new vehicle.
Good preparation gives you a higher chance of getting approved by the car finance company. You will also be able to avoid the common mistakes that car buyers make when applying for car finance.
In this guide, we've got everything you need to know about preparing for a car loan application. So read on and get ready to buy your new set of wheels!
Save Money for Your Deposit
The higher your deposit, the less you'll need to borrow to fund the car purchase. Monthly payments are also lower when the deposit is higher.
So, before you apply for finance on a car, think about how much you'd like to contribute towards the deposit. If you don't already have the cash available, maybe set aside some money every month from your salary or your source of income. Do this consistently and you’ll end up with a significant amount for your deposit on the car and this will save money on interest payments in the long run.
Check Your Credit Report
Lenders evaluate your application for finance by checking your credit report and score. So it's wise to check your report to see your financial history record and what your credit score is before applying. The score or rating matters, because it represents how good you are when it comes to paying your debts and bills on time and generally managing money.
Checking your credit report would also give you the opportunity to assess if there are any errors in the personal information in your records, such as your name and address. Errors and incorrect or outdated information can affect your score negatively, which, in turn, impacts the car finance application. Also, review your transactions to see if they’re correct. It’s a way to determine if there are any suspicious or fraudulent activities being done under your account.
Know How Much You Can Afford
How much do you need to buy a car? If you have funds to pay for the deposit, then you won’t need to cover the full price of the vehicle in the loan. This is great because it also means you will pay less interest. What’s important here is that you need to know how much you’ll need to make the purchase and compare that to how much you can afford in repayments each month.
You should know whether you can afford to pay back the lender for that particular amount. And remember it will be over a long period. If you are in doubt have a look at our blog about affordability to help you. You may of course get bigger offers so you can buy a more expensive car, but it's really important not to get carried away - know your budget and stick to it.
Take Your Time When Choosing a Car
There are so many options to choose from when you’re shopping for a car. Just like how it's possible to apply for car finance online in the UK now, you can also now buy a car entirely online and get it delivered to your door.
Then it comes to choosing the type of car you'd like or need and also do you want a brand new car or is a second-hand vehicle more appealing? The choice depends on your budget, needs and personal preferences.
Take as much time as you need when making a shortlist of cars you like. If you want, make a pros and cons table to determine why a particular car is a good choice or not. For example, you may like one model but it’s too expensive, so it’s not a very practical option and therefore may opt for something more affordable.
By doing it in a systematic way, it will be much easier for you to weigh up your decision. You may also ask for advice from your family or significant other. Talk to your friends who also have cars so they can share tips on how to choose the right vehicle for you. A second opinion is always good when it comes to the big decisions!
Ask for Finance Quotes
Apart from selecting a car, you will also have to choose a good car finance company. Don’t apply to every lender you come across. That would not be good news for your credit score! Do your homework and check out the interest rates of different lenders and list the ones with the lowest rates and fees before you actually apply.
Once you have a shortlist, spend time researching the lenders and their car finance deals so that you’ll have an idea of what they can offer. When you’re ready, you can contact them and ask about their services. Ask for finance quotes so you can study them closely. A good way to compare lenders is by looking at their APR rate, which will include any charges etc. and is calculated in the same way by every company.
Don’t forget to use the car finance calculators that are usually available on the lenders’ websites. This is another way of getting an estimate of your monthly repayment amount. Don’t be in a rush to sign a car finance deal. If you’re not sure, then read more about the car finance deals and how you can get the best rates.
When you’re reading about different car finance agreements, you may come across technical terms that you’re not sure you understand. You can always contact the car finance company’s representative so you can ask them any questions you may have.
Don’t hesitate or be daunted by this as most people find finance terminology a nightmare. It’s important that you know and understand everything about a car finance deal and the terms and conditions before you sign the agreement. Lenders will be more than willing to help you out, so go ahead and reach out to them.
The preparation you make in applying for a car loan is crucial because it will have an impact on the success of your application. If you do everything right, then you may just be a few steps closer to driving home your dream car.
But keep in mind that your credit score and history also play an important role in your application. As part of your preparation, you also need to assess whether your credit rating is good enough to secure car financing.
A low score will most likely be rejected, or you may still get offers but at high interest rates. If you have a poor credit score, you may want to wait a bit before applying for finance so you can work on improving your score first 👍