How common is it to buy a car on credit?
More than 86% of new cars in Britain are bought by customers using some form of finance – a proportion that has remained more or less stable for the past 12 months, according to the Finance and Leasing Association (FLA). During the same period, customers also borrowed a total of 12% more on the purchase of second hand cars.
Who provides the credit?
Car finance is made available by a number of different providers:
Banks and building societies
- one of the more traditional sources comes from unsecured personal loans from banks and building societies;
- typically, you need to be an existing customer of the bank or building society, since this helps the lender to gain an insight into your financial responsibility;
Hire purchase companies
- hire purchase companies also provide the facility for buying a car on credit – and, in this case, the credit is effectively secured against the vehicle itself, which does not become your property until you have made the final repayment;
- in addition to the traditional sources, there is an increasing number of independent finance companies offering deals on car finance;
- the advantage in using a specialist car finance broker is the access it gives to a wide range of different finance companies – allowing you to find precisely the deal that suits your individual needs and circumstances, at a competitive rate of interest;
How much can I borrow?
The amount of car finance it is possible to arrange depends on how much you want to borrow, for how long a period of time, your ability to afford the monthly repayments and the size of any deposit you are able to put down on the purchase.
Specialist finance brokers may offer a car finance calculator, showing at a glance the total cost of borrowing a selected sum, the period of the loan, the cost of monthly repayments and the amount of interest accruing.
Is my credit history always checked?
No credit check car finance is a myth – whatever some websites might tell you.
A formal credit check is always made by any lender as a way of determining the affordability of the credit you are seeking and your likely ability to make the repayments when they fall due.
Can I get car finance with poor or bad credit?
If you have had difficulties managing the repayment of loans in the past, made Individual Voluntary Arrangements (IVAs) with creditors, have had County Court Judgments (CCJs) against you, or been made bankrupt, you are almost certain to have a poor or bad credit rating – and many lenders may decline your application as a result.
But there are specialist car finance brokers able to identify lenders prepared to advance the credit you need.
What if I have already been refused credit?
If you have been refused credit, it is probably because of your poor credit record – and, to make matters worse, every rejection is likely to adversely affect your credit rating still further.
That is why specialist car finance brokers typically conduct a “soft credit search” or “quotation search” before you make any formal application to any lender, since the likelihood of your being accepted is then much better and you avoid yet another damaging refusal.
Can I get car finance if I am self-employed?
Some lenders make it more difficult to obtain credit if you are self-employed – asking either for a mountain of paperwork in evidence of your earnings, or by charging a higher than usual rate of interest, or both;
Specialist car finance brokers, however, have credit deals specifically designed for the self-employed.
Do I need a deposit?
It certainly helps if you have a deposit to put down on the purchase price – it means you need to borrow less and some lenders may insist on your finding a deposit of some size (typically around 10%).
Once again, however, there are specialist brokers who are able to arrange no-deposit car finance.