Getting your first car loan can, at first, sound like a daunting prospect. The word loan comes with all sorts of connotations that can send people into a panic and phrases like interest rate and APR get thrown around, leaving people confused and put off.
However, getting a car loan isn’t scary, nor complicated. In fact, it’s a pretty simple process. But, we understand that unless you know that process, it might not seem that way.
And that’s where we come in. In this article, we’re going to look at how to get your first car loan, from the credit check to whether you might want to consider a guarantor.
How do I get a car loan?
Unfortunately, it’s not quite as simple as asking the bank for money. There is a process involved, but luckily it’s the same everywhere for everybody. So all you have to know is how it works. In this section of the article we’re going to go through the steps involved in getting a car loan.
1. Check your credit score
Before you do anything, we recommend that you check your credit score. To qualify for a loan, you will have to have a good credit score. While you will go through a credit check at a later date, too many credit checks can damage your credit score. Therefore, we advise that you check your credit score before you apply for a loan to save any unnecessary checks.
You can check your credit score at a website such as Experian or Equifax. However, please be aware as you will have to pay for these services after a month. You get the first month free, but after that they will start charging you. So, if you want to sign up, check your credit score and then cancel your account that is up to you. But we feel it’s important that you are aware of this before you sign up to anything.
Once you have checked your credit score, and it is good, then you can proceed.
What happens if I have a bad credit score?
If you have discovered that you have a bad credit score, then it will make things more difficult for you to get a car loan. But please don’t be disheartened, there are some things that you can do that mean that you can still get a new car. We go into more detail about this further down in the article.
Another problem that may arise is that you don’t actually have much of a credit score. This could be the case if you are quite young and are getting a car loan for the first time. Not having much of a credit score can be just as damaging as a bad one. But again, don’t be disheartened. We go into more detail about what you can do about this below.
2. Choose your car
Once you have checked your credit score, you will have to choose which car you want so you know how much you will be borrowing.
You might be asked to put down a deposit for your car. You can either pay the deposit with your own money or you might want to use your loan for your deposit as well. It doesn’t matter either way, but you will have to take this into account when you are looking at how much you will want to borrow.
3. Apply for your loan
Once you have decided which car you want, you will have to apply for a loan. You can do this at any bank, building society or an independent loan provider.
It would be a good idea to have a look around and see what sort of deals are on offer. Many loan companies and banks are in competition with each other, so we advise having a shop around first.
What are the different types of loan?
There are two different types of loan you can go for; a secured loan and an unsecured loan.
A secured loan involves you putting down something called collateral. This is usually the most expensive thing you own, which is often your house or your car. If you default on a payment and can’t pay them back then the lender will take this piece of collateral.
This is not the case with an unsecured loan, however. This means that the lender will approve the loan based on your credit rating alone and will trust you to make the repayments on the same basis.
When you are applying for a loan, we advise that you check the APR. This is the Annual Percentage Rate and will tell you how much you will be repaying. The higher the percentage, the more you will have to pay back. Therefore, it’s important that you check this and find the lowest APR when shopping around for a loan company.
What happens when I apply for a loan?
Once you have applied for your loan, you will undergo a credit check to make sure that you can make the repayments.
If you are approved, then the amount you can borrow and the repayment terms you will be offered will depend on a number of factors including;
- Your credit history
- Whether you have any other outstanding debts
- This could be another loan or your mortgage, for example
- Your current employment status
If you agree to these terms, then you will be given your loan.
4. Get your car and repay your loan
Once you have received your loan you can buy your car and start to repay your loan. It’s as simple as that.
What happens if I get declined a car loan?
If you are denied a loan for whatever reason, then don’t be disheartened. You can still get a car. However, your options are slightly more limited, but here’s what you can do.
Getting a car with bad credit
If your credit score is not up to scratch, then the chances are you will be denied a loan. This is because the lender cannot guarantee that you will make the repayments.
There are specialist vehicle brokers that work with people with bad credit. These are companies that will lease you a car for a set period of time. Your options may be more limited and it may cost you more monthly, but keeping up with those repayments will boost your credit score. So it is worth looking into. You can read more about leasing with bad credit here.
Getting a car with a guarantor
Alternatively, some vehicle brokers will allow you to get a car using a guarantor. This is someone who agrees to take on the payments of car should you fail to make them. They have to be over 21 years old, have a good credit score and not be financially linked to you. Many people have a parent as a guarantor but it can be anyone you trust to be there should you not be able to make the payments. You can read more about getting a car with a guarantor here.
Buying second hand
Your last option should you be declined a car loan is to simply get a second hand car. They cost significantly less money which means you will not need to take out a loan to get one. You can buy second hand cars anywhere from gumtree to autotrader. You can read about buying a second hand car here.
In conclusion, getting a car loan is actually easier than it looks. You will have to be prepared to have your credit checked, however, and also to have a shop around before you decide which loan company to go through. Ultimately, though, it’s a very simple process. However, if you are declined a car loan then don’t be disheartened, you can still get a car using some of the options above.
- Benefits of business car leasing - 13th April 2021
- Things businesses should consider before hiring a Fleet Manager - 12th April 2021
- Tax benefits and implications of business car leasing - 8th April 2021