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Car credit how does it work?

Buying a new car for most people may involve some form of car credit to finance the purchase.

Buying a new car for most people may involve some form of car credit to finance the purchase.

There are probably three main sources of car finance:
•    Banks and high street lenders;
•    Motor dealerships;
•    Specialist motoring websites.

Whichever of these methods you choose, there are a number of points you may want to bear in mind.

•    If you can afford to pay a deposit it may make good sense to do so. The smaller the loan the more quickly it could be paid off and the less interest on car credit you may pay.  A deposit also may show the lender that you are committed to the deal.

•    Once you start looking at cars, it’s very easy to get tempted by a slightly newer or bigger model. It may make sense to work out how much you can afford in monthly payments and stick to it before you even start to look around for a vehicle.

•    If you get behind with most types of car finance repayment, your vehicle may be repossessed and your credit rating may fall. Spending more than you can afford may not be such a good idea in the long term. 

•    You may also wish to consider taking out insurance for your credit arrangements. This could protect you against the hopefully unlikely event that you become unable to continue making your loan payments for reasons of redundancy or illness. 

•    If your car is written off or stolen, your car insurance will typically only pay out to the value of the car and this may not cover the value of the finance that you still have to pay.  There is a type of insurance that can fill this gap called GAP insurance.

•    It may be prudent to remember to include the cost of any such insurance in your ‘how much car credit can I afford’ calculations.

•    If you are worried that your credit rating is not as good as it should be, there may still be a good chance that you will be able to find finance. You may have to accept though that you will probably have to pay more for it.  The rates lenders lend at are determined largely by risk. The more risk you seem to be the higher the interest they may charge you.

Finding your new car, arranging the finance, agreeing a deal and getting rid of your old one may be a fairly lengthy affair.  You may be able to shorten this process and find the best deal possible by using one of the specialist websites where you can search for your dream car, compare car credit options, arrange your finance and complete your purchase all in the one place.  You may even be able to trade-in your old car as part of the deal.

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