When it comes to car finance, there are many options. It leads to many searching for the best option for them. There are a few factors that you need to consider before you start applying for any type of finance – this will help you find the best option available.
How Much Do You Want to Borrow in Total?
The first question that you need to ask yourself is how much do you want in total? This will often affect some types of car finance, especially if you are looking at unsecured bank loans. The bank loans will usually offer a maximum of between £10,000 and £15,000 depending on the provider, which is usually enough to get a used car but not a brand new one – depending on the type.
The amount you need will be affected by what you require in a car. There is no point in looking for a sports car if you have a family of four. You will also need to decide whether you want a petrol or diesel car.
How Much Do You Want to Pay Each Month?
If you want more flexibility, then you should consider a personal contract purchase. This type of car finance offers the biggest flexibility. However, this type of finance is often taken through a dealership, so you will need to consider the higher interest rates.
Also, to work out the monthly payments for a personal contract purchase will take time. This may mean that you pay more over the long term without actually realizing. A hire purchase is much easier to understand and you can double check the amounts if you wish.
How Much Deposit Do You Have?
If you have not saved up any money for a car, then you will need to look at traditional bank loans. Other types of finances require some type of deposit, usually between 10 and 20 percent. A personal contract purchase usually means a smaller deposit than a hire purchase, but a hire purchase is often more straightforward.
Remember, that the more deposit you have, the less you will need to borrow. This could mean that it is possible to add on your first year of tax to your loan amount to make it much easier for you.
What Is Your Credit Rating Like?
As much as you hate to think about it, your credit rating will affect the type of car finance available to you. Banks are usually stricter than car dealerships for loans due to the lower interest rates that they charge. There is also more risk for banks to offer loans than for the car dealerships, considering the dealerships keep hold of the car title until the final payment is made.
Your credit rating will also affect the total that you will have to pay when the interest is added on. The better your rating is, the less interest you will need to pay in the long term. It may work out better to wait to improve your rating before applying for a loan to get the better rates.