If you’ve been thinking about buying a car, then you’ve probably encountered something called car finance. A lot of dealers offer this, but what is it?
It’s a good idea to understand the basics of car finance and how it works, as it could help you make a better decision when buying your next car. So this small guide will explain everything you need to know.
What is car finance?
Car finance is an alternative way of paying for your car. Instead of paying the full price all in one go, you split up the costs through monthly payments. Typically, you have to pay an initial deposit of around 10% before making your monthly payments.
So as an example, you have a new car that’s worth £10,000. Rather than pay all of it in one go, you pay the 10% deposit (£1,000), followed by monthly payments of £900 for 10 months.
Where can you get car finance?
As mentioned in the introduction, car finance is usually offered by car dealerships. If you buy directly from the manufacturer, then they provide finance deals for brand new cars. Car dealers like LMC let you apply for finance to purchase used vehicles, so it’s not something that’s strictly in place for expensive new cars.
How do you apply for car finance?
Applying for car finance is simply a case of asking the dealer about it. Some websites let you do this online, but other dealers require you to come see them in person. The application process is as simple as filling in a few forms – most of the work goes on behind the scenes.
When your application is submitted, a credit check will be carried out. They need to do this to ensure that you’re trustworthy enough to stick to the monthly payments. People with bad credit scores don’t often get approved for car finance as dealers worry that they’ll miss payments.
What are the pros and cons of car finance?
For some people, car finance is the best thing since sliced bread. This is because it poses a few significant advantages:
- Allows you to spread the costs of buying a car, making it easier to fit the purchase into your budget
- Gives you a chance to buy a car that might be too expensive to pay for outright
- A better option than car loans as you don’t have to borrow money from anyone
However, there are a few disadvantages as well:
- Paying for your car in cash means you own it right away; car finance doesn’t give you full ownership until your debt is paid
- The dealer can technically repossess your car if you miss payments
In summary, car finance is an idea that some people can benefit from. If you cannot pay for a car in cash, then this is a fantastic option to think about. But paying for a car in full is always the preferred option. If you have the financial ability to do this, then it will mean you own the vehicle and aren’t in debt to anyone. So weight up all the pros and cons before you decide car finance is right for you.