For many motorists, car finance is the most realistic pathway to car ownership. Car finance allows you to spread the cost of purchasing a vehicle, but like with any type of finance, you need to get approved first. This can be tricky when you have poor or limited credit, so this post will take you through a few steps that will improve your chances of being accepted. Read on to find out more.
Check & Improve Credit Score Before Applying
It is a good idea to check your credit score well in advance of applying for car finance. This will give you enough time to improve your score if needed. A few ways to boost your score include:
- Checking for errors
- Registering to vote
- Making payments on time
- Keep credit utilisation low
Lenders will always look at your credit history when making a decision, as this will indicate whether or not you are a reliable borrower. It can take a while to improve your score, though, which is why you need to check your report as far in advance as possible.
Save for a Deposit & Choose the Right Finance Option
If you are using car finance to purchase a vehicle, you will still need to put down a deposit. You want to put down as large a deposit as possible to reduce the amount that you need to borrow – this will improve approval chances and lower your monthly payments.
It is also helpful to be aware of the different car finance options to find the one that best suits your situation. A few of the main types include:
Personal contract purchase (PCP): Pay a deposit and regular monthly payments. At the end, you can either return the vehicle or pay a final “balloon” payment and keep it.
Hire purchase (HP): Similar to PCP, but at the end you pay a nominal fee to own the car.
Personal loan: You can take out a personal loan, which allows you to own the car from the outset.
IVA car finance: If you have an Individual Voluntary Arrangement (IVA), some lenders will offer IVA car finance – these arrangements can make it harder to get approved for car finance, so this is a smart solution.
Avoid Common Mistakes When Applying for Car Finance
There are a few common mistakes that people make that can affect their chances of getting approved. These include:
- Submitting multiple applications for finance in a short time
- Overstating your income
- Ignoring lender criteria
To avoid these mistakes and improve your chances, you should always prepare documentation in advance and apply to one lender at a time. Be sure to read all of the lender criteria before sending off your application.
The information in this post will improve your chances of getting approved for car finance. This will make the process of buying a car much easier and allow you to spread the cost.