Having trouble telling the difference between fact and fiction? Read on for our car finance expert Verity Hogan’s quick guide to debunking common car finance myths.
Navigating the world of car finance isn’t always easy.
With a wealth of information to wade through, conflicting opinions, and well-meaning advice, you could be at risk of falling for some of the most common car finance myths.
That’s where I come in to debunk them.
With over five years’ experience in the car finance industry, I can help you sort the facts from fiction with my quick guide to the most persistent misconceptions:
Buying in cash is always better than car finance
Is cash really king? There’s no doubt that it’s almost always the cheapest way to buy a car, but that doesn’t necessarily mean it’s the best option.
Unless you’re lucky enough to win the lottery or have very generous family members, you’ll need to dip into your savings if you want to buy a car outright.
That could mean sacrificing that European backpacking trip or putting off moving into your own place for a while, especially once you factor in the other costs associated with car ownership, like insurance and fuel.
Buying in cash could also limit your options. You’ll probably have to drive the same set of wheels for a while and deal with depreciation as your car loses value over time.
Choose a type of car finance like Personal Contract Purchase (PCP) or Personal Contract Hire (PCH) instead, and you could simply hand the car back and change it to a new model every two or three years!
You can’t get car finance with no credit history
Your credit score can be important – but it isn’t everything!
When considering your finance applications, lenders will look at a whole range of factors. Your credit score – a three-digit number representing your payment history – can help them understand how you might behave as a borrower.
Never had credit before? That makes you an enigma.
While there’s nothing wrong with a bit of mystery (ask Agatha Christie), having no credit history can put lenders on edge. They don’t like the risk that comes with the unknown and might be more reluctant to offer you a loan.
Don’t panic; it’s not impossible to find car finance with no credit history. In fact, some lenders specialise in helping people with limited credit, like you. You could also consider teaming up with someone you trust (with a good credit score) to explore finance options like joint or guarantor loans and potentially improve your eligibility.
Car finance is only available to over 21s
As a young driver, you’d be forgiven for thinking car finance just isn’t a viable option for you. And it’s true, the odds aren’t in your favour.
If you don’t have much of a credit history, have a limited income, and are still studying full-time, it can be harder to find a loan. Some lenders won’t offer finance to under-21s.
However, despite these potential roadblocks, Young Car Driver can help drivers aged 18 to 21 find the car finance deal that’s right for them (you must be at least 18 to sign a legally binding contract).
The best car finance option is the one with the lowest monthly repayments
When it comes to monthly repayments, the smaller the better, right?
Again, that’s not always true – it all depends on your personal circumstances, financial situation, and priorities.
Lower repayments usually come hand-in-hand with a longer loan term, and every month added to your term will cost you more in interest.
That’s why it can work out more costly overall to pay smaller repayments for longer than it would be to pay more each month over a shorter loan term.
There’s no one-size-fits-all. For example, you might not have the luxury of choosing higher repayments if you have limited income. In that case, getting your own set of wheels could be well worth the extra interest you’ll end up paying over time.
You need a deposit with car finance
There are pros to putting down a deposit upfront. It could reduce the amount you need to borrow, reduce your monthly repayments, and potentially improve your eligibility.
But deposits aren’t essential. No deposit car finance is available from several lenders so you could end up buying a new set of wheels without paying a penny.
No deposit, no problem!
Getting car finance is complicated
I won’t lie to you; car finance can be complicated. Sometimes it feels like a minefield filled with acronyms, jargon, and different types of loans, all adding to the confusion.
That’s why Young Car Driver exists. We’re all about getting straight to the point and cutting through the complexity so you can focus on finding the best deal for you.
It really can be as easy as 1, 2, 3:
Step One – Apply for finance – tell us a few details about yourself, your income, and the car you’ve got your eye on.
Step Two – Choose a car – new or used, it’s up to you.
Step Three – Sign on the dotted line – if you’ve received an approval in principle, make sure you’re happy with the terms and conditions before making a commitment.
You can’t get car finance for a used car
That new car feeling can be hard to beat, but as a young driver, there’s no need to pay a premium for a model that’s just rolled off the factory floor.
If you’re buying on a budget or looking for affordable car finance, you could be better off with a used car. Hire Purchase (HP), PCP, and personal loans can all be used to finance a second-hand set of wheels.
Before you head down to your local dealership, keep in mind that requirements might apply: some lenders won’t finance a car that’s over 10 years old or has been previously written off, for example.
The car is all yours as soon as you pick it up from the dealer
When you opt for HP or PCP car finance, your loan is secured against the car. That means you won’t be its legal owner, even though you’ve picked up the keys and its parked up on your driveway.
In fact, your pride and joy won’t be officially all yours until all your payments are made – including the one-off balloon payment in a PCP deal.
In the meantime, you’ll be its registered keeper and responsible for its upkeep, fuel costs, insurance, MOT, and service.
As it’s not yours yet, you can’t sell the car or make any modifications during the loan term either.
