Buying a car on finance is a popular option in the UK, allowing people to spread the cost of an expensive vehicle purchase over monthly payments. Two of the most common types of car finance deals are hire purchase agreements and personal contract purchase (PCP) arrangements. Before committing to either, it’s important to be aware of the following.
1. Your Credit Score Matters
When applying for car finance, whether in Scotland or elsewhere in the UK, the lender will check your credit score to assess how much of a risk you are. The higher your score, the more likely it is that you’ll be accepted for finance and offered better interest rates. If your credit score is poor, you may struggle to get accepted or have to pay higher interest.
If you find yourself in this situation, it’s worth exploring car finance options with a bigger dealer network, such as Dunwell Motor Group in Scotland. They have access to a wider variety of lenders and can help secure the best car finance in Scotland, even for customers with less-than-perfect credit.
It’s wise to check your credit report before applying and take steps to improve your rating if needed. Small things like not being a registered voter can negatively impact a finance application.
2. Be Realistic on Deposits
Most car finance deals require a deposit upfront, often 10% or more of the car’s value. While it’s tempting to put down as small a deposit as possible, a larger deposit will reduce the amount you need to borrow and the size of your monthly repayments. Be realistic on what size deposit you can afford based on your savings – too little could see your application declined.
3. Look at the APR Rate
The annual percentage rate (APR) shows the true cost of borrowing including interest and fees. Compare APR rates when looking at car finance to see which represents the best value. A low APR means lower interest fees across the deal. Watch out for deals with no interest – the fees are likely loaded into the APR instead.
4. Understand Fees and Charges
As well as interest, car finance deals come with arrangement fees and early repayment charges. Arrangement fees are typically a few hundred pounds paid when setting up the agreement. Early repayment charges apply if you pay off the finance before the fixed term – often 5% of the total owed. Check all the fees so you know the total cost.
5. Think About Long Term Affordability
Work out your budget and how much you can realistically afford to pay each month for car finance. This will determine the price of car you can borrow for. Be cautious about stretching your budget to the maximum monthly payment – interest rate rises or life changes could make payments unaffordable later on. Leave yourself financial breathing space.
Buying a car on finance opens up options that may be unaffordable with cash purchases. But it’s still a long-term commitment that carries risks. Do your research and be eyes-wide-open on the pros and cons before signing an agreement. Making informed choices will help ensure car finance works for you.