Ten car financing myths debunked

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Date: 18 October 2021

Buying a car may be easier than you think with car finance

Car finance is undoubtedly the most popular way of buying a vehicle but understanding what type of finance will work best for you is one of the biggest challenges you'll face. With all the myths and misinformation floating around, the thought of applying alone may put you off - especially if you are a car financing newbie.

But to put your mind at ease, we've rounded up ten of the most common car financing myths so that you can see the truth for yourself as we debunk them, one by one:

Myth #1: Car finance is only available at the dealership

While dealerships up and down the country will try and draw you in with eye-catching displays and seriously tempting offers, you are free to shop around for car finance deals outside of the showroom.

From reputable online lenders to taking out a personal loan from your bank, you can get a quote for car finance without damaging your credit score before you step out your front door.

Myth #2: You can't check your own credit rating without affecting your score

This couldn't be more wrong!

Regularly checking your personal credit report is not only healthy, but it helps ensure all of your payments are being processed correctly and on time. It also allows you to address inaccurate information with your lender or debit agreement provider within minutes.

Although multiple applications for credit can negatively impact your credit score, checking your credit report will leave no footprint at all.

Myth #3: Shopping around for car finance is damaging to your credit score

This is another misconception. As long as you stick to 'soft credit searches' when shopping around for quotes, these will not show up on your credit report to those on the outside. You will be the only person who can see those searches.

It's only when you have submitted a finance application that this 'hard search' will show up on your credit score.

While there is nothing stopping you from making multiple applications from multiple lenders in a short space of time, it's not recommended. In short, the more finance you apply for, the less likely it is that providers will want to accept you, even if your intention was simply to shop around.

Myth #4: You can only use car finance on new vehicles

Wrong! The beauty of car finance is that it isn't a one size fits all deal. While some types of finance are only available for the purchase of new cars, such as leasing, there are numerous options that will allow you to buy a new, nearly new or used vehicle. From personal contract payments to hire purchases, there is a finance solution for everyone. 

Myth #5: Car finance isn't available for customers with a bad credit score

While having a good credit score will give you access to lower interest rates and a more competitive range of finance deals, car finance is available even if you have a bad credit score.

You may have struggled to make payments on time in the past, might be self-employed or have faced bankruptcy in the past. However, there are specialist lenders that will look at your individual circumstances to get you the best car finance deal possible.

You'll find that the APR (annual percentage rate) and monthly repayments are higher than a standard loan if you have a bad credit rating. However, the best lenders around won't let you take out a loan that is unreasonable to pay back. 

Myth #6: Car finance = bad credit rating

The whole point of car finance is to allow the customer to get the right car for their circumstances, without delay or the restraints on their current bank balance. So, having a car finance deal in itself will not give you a bad credit rating. In fact, making your repayments on time will show other lenders that you can be considered a "low credit risk" client.

However, failing to make your repayments on time will show lenders that you are a higher risk. So, make sure you choose an affordable deal that won't leave you broke at the end of each month. The key is to make your payments on time, after all.

Myth #7: Car finance is only available with a deposit

Typically, most car finance deals will require you to put down a deposit (usually 10% for a standard loan). This not only offsets your monthly repayments, but it gives your provider more confidence that you are committed to your arrangement.

However, it's not always so clear cut. Individual lenders will offer tailored packages, and some will come without the need for a deposit.

Whichever provider you choose, make sure you read through the fine print before you sign on the dotted line. Ultimately, you need to pick the finance option that works for you and is suitable for your circumstances. 

Myth #8: Getting accepted can take time

Back in the day, when loans typically came solely from the bank or a traditional finance provider, you would have to wait weeks, sometimes months for a finance application to be approved. But those days are long gone.

Most car financing deals are scored online, and you can get a quote back from several lenders within five minutes. If you've found a deal that works for you, completing your application shouldn't take much longer. In some cases, you can drive away in your new motor on the same day!

Myth #9: You can't have a finance package for more than one car

There is no rule within the world of car financing that says you can't have more than one finance deal at a time. However, this isn't a situation to take lightly. You need to be financially secure and able to afford the monthly repayments even to be considered for one finance package, let alone two!

Myth #10: Only over 21s can get car finance

Credit is not dependent on being over 21. After all, think of all the mobile phone contracts that are in circulation!

Car finance can be secured by any person aged 18 years old and over. The only real catch here is that applicants may have no credit score to speak of and may struggle to get accepted without a guarantor, such as a parent or a guardian, to show lenders that repayments can be met.

There you have it. Ten myths debunked, and car finance explained. Are you ready to take the leap and bag yourself a deal? 

Copyright 2021. Article was made possible by site supporter Carvine.

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