Financing a car is a common way to acquire a vehicle, allowing buyers to spread the cost over time and manage their budgets effectively. Financing is a popular option these days, and in April 2024, consumer car finance new business volumes grew by 8% compared to the same month in 2023, according to the Finance & Leasing Asscociation.
In the previous year in 2022, new car buyers financed an average of £25,000 per car in 2022, with vehicle finance debt reaching a staggering £40 billion annually, according to House Grail.
Research from Motors on it’s latest Consumer Insight Panel research that quizzed 2,008 people, found that when consumers first start looking at how to finance their purchases, almost half (46%) first think about payment options before they start searching.
They also found that only one in two (51%) say they are comfortable with the process. Over a third (34%) are neither comfortable nor uncomfortable, while 15% are uncomfortable.
Preparation is everything and understanding the financing process will set you up for success when you head to the dealership. So what can you do?
According to Lending Tree, these are just some of the things you could do to get comfortable with the financing process:
Budget: Follow the 20/4/10 rule. Aim for a 20% down payment, a repayment term of up to four years, and transportation costs that don’t exceed 10% of your monthly budget.
Check Your Credit: Your credit score matters. It affects loan approval and interest rates. Monitor your credit score and address any issues.
Get Preapproved: Preapproval gives you an advantage when comparing lenders. Look for first-time car buyer programs offered by companies like Ford, Enterprise, Kia, and Honda.
Choose a Dealership: Research local dealerships with good reputations. Avoid in-house financing (also known as “buy here, pay here”) and explore third-party lenders.
Car finance is very popular in the UK, allowing buyers to spread payments across affordable monthly installments and acquire the car of their dreams. If you’re considering financing a car purchase, it’s a good idea to check your credit score, explore prequalification options, and choose the right financing for you.
Financing might make a higher-end car fit in your budget, and pay for your car over several years, reducing the upfront financial burden. If the thought of financing a car sounds like an uncomfortable process, do the research, check if there’s any hidden fees or anything you’re unsure of before signing on the dotted line. Ultimately, whether financing is a good idea depends on your individual circumstances.
