Want to apply for a car loan? Buying your first car is a huge milestone. Now, you need to finance it. So, unless you can pay cash upfront, you’ll need to find a car loan. What options are out there, and how do you boost your chances of applying successfully first time around?
Here’s our guide to applying for a car loan and our top tips to boost your chances of making a successful application.
There are various loan types available, but for car finance, there are four main options.
Rather than apply for a car loan, you can take out a personal loan with a bank, building society or other independent lender.
HP lets you hire a vehicle with the option to purchase it at the end of the loan term. Once you’ve paid off the loan, the car is yours.
Think of a PCP like a long-term rental. You pay to rent the car and you hand it back once the loan period ends. When you hand the car back, you can apply for a car loan for another vehicle and start a new PCP.
With leasing, you essentially rent the car and pay the car dealer a fixed monthly sum to use it. You hand the car back once the agreement’s over.
Ready to apply for a car loan? Here’s what to do.
This is crucial: before you apply for a car loan, be realistic about what you can afford to spend on repayments each month.
Unless you’re buying the car outright, you need a down payment. This payment is usually around 10%, so set this aside before applying.
If you can pay a bigger deposit, it may make it easier to get credit or manage monthly repayments.
Credit score a little on the low side? You could still apply for a car loan, but the interest rate may be higher than you want to pay.
Remember: if your credit score is low, think carefully before taking out any more credit. You don’t want to take on more debt than you can afford to repay!
If you don’t have much credit history, you can still apply for a car loan, although it might take longer to find someone willing to lend you the money. You could start off by approaching lenders who specialise in loans for people with no credit history.
The main places to apply for a car loan are with your bank or a car dealership.
A dealership has a wider range of flexible finance options, but you won’t own the car. If you take out a bank loan, you can own the car right away, but you’re still paying back the personal loan and the interest rate may be higher. It all depends on what you’re looking for.
When you apply for a car loan, improve your chances of approval by following these steps:
Only apply to finance providers regulated by professional bodies like the FCA.
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