How to Prepare Your Finances to Get the Best Car Finance Deal
Every year, millions of us Brits decide to buy ourselves, or our loved ones, a car. And, with 80%(and growing!) of new car purchases involving finance, getting the best car finance deal available is really important. If buying a car is on your to-do list this year, you'll probably begin your journey by fighting a heart versus head battle, weighing up your dream motor against your actual affordability.
Forget about channelling your inner Steve McQueen for now, step back, and begin by focusing on your finances first.
1. Be honest about your budget.
Start by working out your total monthly incomings and outgoings. The Money Advice Service has created an online budget planner, which is a useful resource to help you balance your finances correctly. This includes calculating the total cost of what you are currently spending on your car. It also provides a final balance of what disposal income you currently have available.
By understanding your true car expenditure and disposable income, you can then determine if you are spending too much on your current car or alternatively how much you can afford to spend on a new car.
Balancing your car budget also allows you to highlight car costs that may affect what car you should buy, thus helping you to buy better. If fuel costs are an issue, consider buying a diesel or hybrid car, which cost less to run. If car insurance costs are a concern, then think about how you could reduce this. For instance, you could look at buying a car similar to the one you own, or the car you want to buy, with smaller engines. You could also look for cars with approved alarm, immobiliser and tracking devices, which can attract a discount on car insurance of around 5%. Most newer cars include these devices but it’s worth asking the seller when shopping for a used car.
2. View your credit report and take action if needed.
If you've never looked at your credit report before then it can feel like looking at your bank balance after Christmas. You put it off because you worry what you'll see but, when you finally bite the bullet it’s the time that you can start taking action to improve your finances.
As with any borrowing, car finance lenders review your records with credit agencies when deciding what finance deal they are willing to offer to car buyers. The better your credit report is, the better the finance deals available to you. So, knowing what's on your credit file will help you understand what to expect in terms of finance options available.
A number of credit agencies, including Experian and Equifax, offer 30 day free trials so that you can view your first credit report from them for free. Alternatively, you can request a “statutory credit report” for only £2.
Your credit report includes a summary of positive and negative factors affecting your records. Look at the negative factors listed to consider ways to improve your credit.
Take time to read through your report and ensure that the information is accurate. Does your current address match the last known address on your credit report? If it doesn't then contact your bank, your mobile phone provider and your creditors to ensure that they have your current address. Are your credit account records accurate? If you do not agree with any records held about you then notify the credit agency and contact the creditor to raise a dispute. Credit agencies have 28 days to reply. While details are under investigation, lenders cannot rely on any “disputed information” when assessing your credit rating.
Consider your credit statements on your report and whether you have the ability to improve them. If you can afford to reduce your debts, start by paying any overdue accounts or credit cards which are over their limit.
3. Register to vote.
Are you registered on the electoral role at your current address? If your answer is no, register to vote on the UK government website. Political views aside, electoral role registration can provide further proof of address to car finance lenders.
4. Value your existing car.
It’s not a necessity, but it can be helpful to have a deposit when buying a car. So, if you’re exchanging your current car, you should equip yourself with an understanding of what your car is worth. You can value your car by using our part exchange valuation calculator.
If you have outstanding finance on your car then it’s important to calculate your car’s equity. Contact your existing finance provider and ask them for your settlement figure. You can then balance the settlement figure against your car’s valuation to determine car equity.
5. Get approved for car finance before car shopping.
After buying a home, a car is probably the second largest purchase that you will make. So, it’s important to make sure that you get the best finance deal available. (Back to that head versus heart battle). It’s tempting to agree to the finance option offered by a dealer on the forecourt. However, this may not be the best finance deal available to you. It can also ruin the buying experience if you set your heart on a car that lenders are not willing to help you finance.
You can get an idea of what rates you could be offered for car finance, from 15 top UK lenders, by using our car finance calculator.