Pitfalls you need to look out for when getting car finance
There are so many factors that come in to play when purchasing a car. From finding the right vehicle to making the decision on a second-hand or brand-new car, and lastly, financing: the one thing that is commonly known to stress people out.
When you decide to research and purchase a new vehicle, it is vital that you are knowledgeable about financing to avoid any issues in the future. But fear not, because we are here to guide you in your car buying process.
Although one may think that applying for finance is time-consuming, it truly isn’t. When you are aware of the do’s and don’t’s, it is easier for you to move away from the pitfalls and get the financing you need.
To avoid any difficulties when getting vehicle finance, read our insightful tips down below.
Not doing your research
The very first thing you need to do when getting car finance is to do your research. Knowing what the lender requires from you is the first step to getting selected for finance. Lenders will be looking at different things, so the best way to go would be to look online and see what their requirements are. However, there are a few guidelines that most lenders use, and they are as follows:
- You need to provide them with your proof of income, preferably your recent payslip.
- You need to be 18 years of age.
- You need to have a valid drivers license.
- You need to have a good credit score.
- You need to earn a salary that fits their lending requirements.
Now that you know what they will look at, make sure you have all the necessary documents. That way, you can ensure you have a smooth process.
Have a budget
Whenever you plan on purchasing something, you need to budget for it. Although you are getting financed for the vehicle, you still need to budget for the monthly repayments. Jot down all your expenses prior to meeting with a registered credit provider and see what you can afford.
With many financial services being online, you can easily view their website and use their financial calculator. This will give you an idea of the amount you will need to pay when purchasing a vehicle. If you are trying to be frugal with your money, buying a used car may be the most affordable route to go. You can always find a vehicle that is in perfect condition from a private seller without having to fork out your entire life’s savings on a brand-new car.
Not checking your credit score
Checking your credit report should be something you do yearly. Although most credit reporters only offer you one free check per year, you can look at your score on one of the many free platforms. For example, Clearscore is a free service that allows you to check your credit report more than once. This is a beneficial tool, not only when you’re considering vehicle finance, but keeping a record of your score for yourself.
Going to a lender without knowing your score is not the best idea. Lenders will be reviewing your score, so it would be beneficial for you to know prior to their enquiry. This enables you to see if you need to improve your score or if there are any discrepancies.
Unfortunately, fraudulent activities are an issue in South Africa and all over the world. Many people find themselves involved in identity theft, leaving their credit score in bad shape. So, checking your score also helps you to see whether there is anything wrong or if you’re unsure of your score. This gives you the chance to raise those issues before you visit a lender.
To be on the safe side, check your score regularly. This will ensure that you don’t get rejected for private car finance because of an issue that could have been resolved.
Pay up some of your debt
A huge pitfall to avoid is ending up with more debt than you can afford. Vehicles are expensive, whether it is brand new or second-hand. They require you to have money, not only for purchasing, but also for car expenses such as petrol and maintenance.
So, to ensure that you don’t end up with financial problems, you need to pay off some debt. There are a number of ways that you can cut down on your debt, and one of the most effective ways would be by paying off your credit cards and shopping accounts.
Not only will this help you, but it will also work in your favour when getting financed. Lenders tend to look at your debt to income ratio before giving you a loan. If you have too many debts, it might lower your chances of getting the vehicle finances that you need.
Cut back on the expensive add-ons
When getting car finance for private sale, you might consider getting all the add-ons for your new wheels. However, you need to remember that this is money that you’re going to have to pay back. More importantly, you need to ask yourself if you really need those add-ons. If you’re on a budget or want to commit to smaller repayments, it’s best to leave them.