If your credit rating is strong and you’re in the market for a car, especially new or nearly new, then the world is pretty much your oyster in regards to funding options. From traditional hire purchase or cash from savings, to newer methods such as personal leasing and personal contract plans (PCPs), there are several choices available.
If, however, your credit history is not so good or you’ve not had a chance to build one up, perhaps because you’re young, then you may need to take certain steps to put you behind the wheel.
Check your credit history
If you’ve been previously turned down for credit, then it’s likely your credit rating isn’t acceptable to lenders.
Your credit rating is built up over time as you go about your financial business – paying bills, taking out and servicing loans, credit cards and mortgages plus running your bank account all go onto your credit file. This is checked when a lender is assessing you for a loan, and they build up a credit score based on what they find along with other aspects, such as whether you appear on the electoral roll.
It’s worth checking your credit file if you’ve been turned down for one or more loans or financial products. You’ll see where the problem lies, or perhaps something about your financial past or present has been incorrectly recorded. If so, write to the credit reference agency and ask to have it amended.
The main three credit reference agencies are Experian, Equinox and Callcredit.
Build or rebuild your credit
Maybe you need to improve your financial track record, or build one up if you’re perhaps younger. One way of doing this is to take out a credit card designed to help build or rebuild credit and use it to build up a positive record.
The other method is to take out a credit rebuilding loan. The payments you make are recorded by the credit reference agency and will help you build or rebuild your credit history.
Some lenders will accept a suitable guarantor on an agreement if you yourself wouldn’t be accepted. A guarantor agrees to pay your loan if you don’t or cannot keep up the repayments, so remember that your guarantor will be liable if you default – don’t assume that the loan would just ‘disappear’.
Perhaps your preferred funding method isn’t open to you. If this is the case then look into other financing methods, even if you perhaps have to lower your sights in terms of the car you have in mind.
For instance, if you fancy a brand new car on a PCP arrangement but you’re being turned down, then maybe you could get a personal loan from your bank or elsewhere. It may mean you can’t stretch to a new car, but could buy a used one.
Or maybe the monthly payment on a PCP or HP is too high; perhaps waiting and saving up a higher deposit would tip the balance?
Understand your financial commitment
It’s important to know exactly how much your finance will cost. Don’t focus purely on the monthly payment – calculate how much the car will cost you to fund overall. Also, bear in mind overall car costs; you may be tempted by a cheap car but what if it costs a small fortune to insure, fuel and tax each year?
The monthly payment on its own doesn’t tell the whole story of how much the car will cost, so do your sums thoroughly.