Buying a new car can unleash all sorts of questions, such as:
- What do I need the car for? (E.g. commuting, local use only, doing the school run, etc.)
- How much can I afford to buy it?
- Do I buy it outright or sign up to a finance scheme?
- What other associated costs would I need to allocate funds for? (E.g. fuel costs, maintenance, car insurance, road tax, etc.)
- Where do I begin my search? (E.g. car dealerships, online comparison websites, etc.)
- How do I make sure that I get the best deal on my car?
It’s likely you could get the best deal on a car if you pay in cash. However, if you need a car and haven’t saved enough, then understanding how car finance works is very important.
Understanding how car finance works
In order to ensure that you get the best deal when you buy a car, we think the following pointers could help you better understand how car finance works:
Whether you’re buying a car for the first time, or getting an upgrade, if the price of the car that you have set your eyes on is what you can afford, you may be eligible to purchase it on a finance scheme, provided of course that:
a) The seller has a finance scheme available on offer
b) You can afford to make the payments in instalments and
c) You have a good credit score
- Factors b) and c) are interconnected in some ways. This is because if you have a high credit score, it suggests that you have the financial clout to repay any credit that you may have taken out in the recent past.
- Whether it is from a car dealership or via a comparison website, the business from which you are making a purchase would have to trust that you can pay the full price, in addition to an interest charge which can vary depending on the terms and conditions of the credit agreement that you have with the car financer.
- The difference between buying a car upfront and outright with buying one on finance is that you would be able to make the payments in periodic instalments.
- For these reasons, the car financer would need to know how creditworthy you are, i.e. how trustworthy you are when it comes to making the payments. So, they would need to see evidence that indicates to them that you can make the payments.
- Please bear in mind that if you are unable to keep up with your repayments, your car could be repossessed by the retailer and your credit score could be affected negatively.
What do I need to show as creditworthy evidence?
A credit score represents how trustworthy you are as a borrower when it comes to making credit repayments, be it through a credit card, a credit agreement, a finance scheme, a loan of some kind, or a mortgage.
How credit-savy are you? Check out this quiz to find out
Your credit score is a 3-digit number that ranges between 0 and 999, where a high numerical value is considered to be a good credit score, while a low numerical value is considered to be a bad credit score.
A good credit score can indicate to lenders that you can be trusted when it comes to paying them back the amount that you had borrowed as well as any other costs involved, such as interest rates, etc.
You may also be able to get a loan deal that has low interest rates and more flexible terms and conditions thanks to having a good credit score.
In other words, a good credit score can be the key to the best deal on your new car!
About the Author
MyCreditMonitor (www.mycreditmonitor.co.uk) provides you with your credit score and credit report to help improve your credit management.
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