How to prepare your finances for a car finance loan
The time has finally come to buy your new car. You’re eager to get to the showroom, full of that exciting car-shopping high.
But before you let your heart and the prospect of that new car smell completely take over, it’s time to do a little groundwork.
After all, a car is an important purchase. By spending a little time ensuring your finances are prepared, you can feel more confident and boost your chances of getting accepted for a car finance loan.
Know your budget
Knowing how much you can comfortably afford as a monthly payment for your car is key.
Review your budget carefully, working out all your incomings and outgoings. There are many budget calculators, template sheets and affordability tools online that you can download for free to help.
Once you’ve worked out your disposable income, you can then determine how much you’re happy to spend on a car finance loan.
Remember, it’s a good idea to stick to what comfortably fits into your budget rather than overstretching yourself.
Calculate the additional costs of owning a car
It’s not only your monthly payments you have to take into consideration. Shop around for estimates on insurance. Look into the cost of maintaining the vehicle. Don’t forget fuel costs either.
If any of these are taking you over your budget, think about cars that are similar to what you want that may cost less to run.
Or alternatively, return to your budget and see if you can make any cutbacks elsewhere.
Slow down your borrowing
One of the first things that’s advisable to do before taking out a car finance loan is to slow your borrowing down as much as possible.
Best practice is to hold off applying for any new lines of credit in the six to 12 months beforehand, but the sooner the better.
If you have any debt, it’s also a good time to start paying that down too. It’ll show the lender you’re serious about repayments and also give you more room in your budget.
Improve your credit score
As soon as you apply for your a car finance loan, the lenders will be looking at your credit report. It’s helpful if you know what they’ll be looking at.
Then spend a little time reading through them. Check for any errors and rectify them, as this could have a negative impact on your score.
Once you’re satisfied that everything on your report is correct, take a look at your credit score. If it’s good to excellent, it’ll make it easier to qualify for some of the more favourable loan terms.
If your credit score isn’t in that upper range then don’t worry as it’s a number that you can change. Go back to the details in your report and see if you can spot why your number might be low.
Perhaps you’re not registered on the electoral roll. Or have you missed a payment recently? Do you have a high credit utilisation ratio?
If you don’t need the car right away, could you postpone your purchase for a few months while you work on improving your score? If not, it’s best to approach a lender that has experience helping those with bad credit.
At Hippo, we have several years’ experience in helping customers with diverse credit backgrounds get the car they want. We believe in responsible lending and can work with you to find the right, most affordable finance for you.
Our ‘Apply Now’ process is the fastest way to check whether you’ll be pre-approved for car finance with one of our top-tier or specialist lenders. It’s a short finance application that won’t affect your credit score or appear on your credit profile.
Value your existing car
If you’re planning on part-exchanging or selling your current car, make sure you arm yourself with the knowledge of what it’s worth.
Take a look around at adverts for similar aged models (ideally with roughly the same mileage) to get an idea of how much you could sell it for.
Selling your car privately will involve investing some time and effort to get the right price, so that’s also something to consider.
Does the car need any work doing to it in order for you to get the price you think you should?
Don’t forget, if you have outstanding finance on your car, then this is also something to factor in. Contact your current car finance provider to find out what your settlement figure will be. And remember, you can’t sell your vehicle privately without settling the finance first.
Save up for a deposit
If you’re not planning on part-exchanging your current car or don’t have a car to sell, thinking about how much deposit you’re happy to put down is an important step before you look into car finance.
With a larger deposit, it could mean lower monthly payments and even lower interest charges on PCP deals. Or perhaps it may mean getting exactly the car you want rather than trading down to a lower-spec model.
Of course, not everyone has a lump sum readily available for a deposit and a lot also depends on the type of finance you’re planning to take.
With zero deposit deals available, saving up for a big deposit isn’t the be all and end all of your car finance dreams, but a step that’s worth thinking about.
Get pre-approved for car finance
The benefit of getting pre-approved for your car finance loan is that you’ll get a better idea of how much you can afford to spend.
With a pre-approval, the lender will provide a quote for the amount you can borrow as well as any additional fees.
You can also get an idea of the interest you could be charged if it’s a PCP deal you’re interest in and how long the loan term will cover. This means you can calculate your monthly car payment and fit it all into your budget.
At Hippo, we can help you through the pre-approval process using our soft search in order to help protect your credit rating.
You can also get personalised deals, so you know exactly which vehicle fits into your budget and reserve it in just one click: