8 Steps to Prepare For a Car Finance Application

Car finance is a popular way for drivers to spread the cost of owning a car into monthly payments. Instead of having to pay one lump sum, you can ask a lender to lend you the money to get a car. It would be unfair for a lender to guarantee finance to some who can’t afford to pay it back so you will need to meet their criteria first. To help understand the finance process and increase your chances of getting approved, follow the 8-step guide below.

Check your credit score.

Your credit score is an influential factor in your ability to get a car on finance. Before you start applying, you should check your credit report and make sure all your information is accurate and up to date. You can also get insight into any credit factors which are holding you back. A low credit score can reduce your ability to get a car on finance and also may mean you could be offered a higher interest rate. If your credit is low, you should take some time to improve your situation before you apply for a car loan.

Limit your borrowing.

In the run up to any new credit application, you should reduce how much you’re borrowing. Applying for lots of different credit at once can harm your credit score and increases your credit utilisation. It can be harder to get approved by a lender if you have high levels of debt already. You should try to reduce any debt or credit you owe first before taking on a car loan to help increase your chances of getting approved.

Set your finance budget.

Finance lenders will usually ask you how much you can afford to pay for a car each month. This can be asked during the application process so you can get a car finance instant decision back. Your budget for a car should be no more than 20% of your monthly wage and you need to be able to make this payment by the end of the term. Failing to pay back your finances on time can negatively impact your credit score and the lender can even take the car off you.

Work out the cost of running a car.

As part of your car finance budget, you should factor in the costs of running a car. Owning a car isn’t just about your monthly payments for finance, you will also need to have a valid car insurance policy in place, and you’ll need to pay road tax if your car is not exempt from the UK government’s rules. Running costs of having a car can include fuel or electric costs, MOT and servicing costs and breakdown cover.

Save for a deposit.

There are many car finance deals which don’t require you to have a deposit to put down at the start. However, it can be a good idea to assess how much you could put down at the start of your car loan. A deposit can help you to secure the deal, instils more trust with the lender and also reduces the loan amount. A larger deposit contribution can help to reduce your car finance interest rate and even lower your monthly payments.

Check out different finance agreements.

Before you start applying for finance, it’s important to know which type of finance is right for you. In the UK, there are many ways in which you can finance a car. Both hire purchase and personal contract purchase are both forms of secured loans which means a lender buys the car from the dealer for you and you make payments back to the lender. It also means if you fail to repay, the lender can take the car off you. A personal loan is not secured against the car and can be the most cost-effective way to get a car. However, they may not be offered to people who have low credit. This is why it’s important to explore all finance options before applying.

Get your car finance documents together.

The information you put on your car finance application needs to be true and accurate. Lenders will ask for documents and statements to prove you are who you say you are and that you can afford car finance. You will usually be asked to supply a copy of your driving license, bank statements and/or pay slips from your employer, a utility bill to prove your address and more. Knowing which documents you could be asked to supply can help you to prepare before your application.

Use a broker.

Using a car finance broker is quickly becoming a popular way to get the best car finance deal.  A car finance broker acts like the middleman between you and the lender and helps to find the best deal from a wide lending panel. Brokers work with multiple lenders and instead of you having to apply with them all, based on their knowledge the broker helps you to find the most suitable deal for your situation with the lowest interest rate. You then have the freedom to get a car within your budget from a participating dealership.