There are several common misconceptions concerning car finance and here we set out to debunk some of these potentially misleading myths.
If you have a poor credit rating you will pay more to borrow
This simply isn’t the case. Even borrowers with poor credit ratings or that have been turned down for credit in the past can get finance at a decent rate. Interest rates are not only calculated from an applicant’s credit rating, many other factors are taken into account such as their salary, employment status and whether they are on the electoral roll.
You need to have a purchase in place in order to apply for finance
Again, totally untrue and a good job too as it would be difficult to find your ideal vehicle if you didn’t know how much finance you could secure and how much it would be costing you to borrow. Most lenders will be able to give their customers an indication of how much finance they can offer and under which terms. This is known as a ‘approval in principle’.
You are obliged to use the finance offered by the dealer
Car dealers want you to use their in-house finance deals as they will make more money from the deal. However, these finance packages are often less competitive in terms of interest rates than many other providers. You are legally entitled to source your finance from any provider and a dealer cannot insist that you use their own.
Securing finance is a complex business
Actually applying for finance is a very simple process and can be done online or over the phone in less than half an hour. Compared to bank loans, finance is much easier to apply for.
There are many hidden charges associated with car finance
It’s true that some providers charge an extra arrangement fee but most don’t. If there is a separate arrangement fee this should be made clear early on in the application process. Apart from that, there should not any extra fees. The finance sector is very tightly regulated these days. For more information see the .gov site for more details.
Self-employed people pay more for finance
This isn’t true either. The self-employed can get competitive finance deals, they just need to be able to provide their proof of income from the last five years or so.
If you have been declared bankrupt you will never be able to get finance
If your financial situation has improved then you will be able to secure some finance and it shouldn’t matter that you were bankrupt in the past. However, if you are currently bankrupt, finance will not be available.
A part-exchange or cash deposit is needed to get finance
This did use to be the case but these days most lenders don’t need any down payment at all. If you have a car to part exchange it may be worth selling it rather than using it as a deposit. Companies such as webuycars.com are a quick and easy way to sell a car.
If you have been refused credit once, you will never be accepted
Different lenders will have different criteria and if you do get rejected it is always worth trying other lenders until you are successful.
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Source: http://www.oft.gov.uk