The common misconceptions and myths of car finance – busted

According to The Car Expert, more than 90% of all new cars are bought with finance agreements in the UK. Like any other financial agreement, there are plenty of misconceptions and myths that have been created. 

Perpetuating these myths can prevent prospective car owners from exploring the options available to them, which is why Jonathan Such, Head of Sales from First Response Finance has provided some industry-level insight into some common misconceptions and debunked them.

Myth 1: I'm limited on what car I can choose 

Many people believe that opting for car finance significantly limits their choice of vehicles. This, however, is far from the truth. Car finance options are designed to be flexible, catering to a wide range of preferences and budgets. Whether you're eyeing a brand-new model or a reliable used car, financing options are available to suit various needs. Dealerships and finance companies often work with an extensive network of lenders to ensure they can offer a variety of vehicles to their customers.

Myth 2: the approval process is complicated 

The perception that the approval process for car finance is overly complicated can deter potential buyers. The reality is the process has been streamlined significantly in recent years. With advancements in technology, many applications can now be completed online, and decisions can be made within hours. Typically, you'll need to provide some basic information such as proof of income, residence, and identity. While there are checks to assess your creditworthiness, these are straightforward and designed to be as hassle-free as possible.

Myth 3: my credit score will be negatively impacted 

A common concern is that applying for car finance will negatively affect your credit score. While it's true that any application for credit is noted on your credit report, responsible borrowing can help improve your credit rating over time. By making your payments on time and managing your finance agreement well, you can demonstrate financial responsibility, which can positively influence your credit score. It's only when payments are missed or defaulted that your credit score might take a hit.

Myth 4: it's harder to finance older cars

Another misconception is that older cars are difficult to finance. While it's true that some lenders prefer newer models due to their higher resale value, many finance companies offer options for used cars. The key is to find a lender that specialises in used car finance. These lenders understand the value and longevity of well-maintained older vehicles and can provide terms that reflect this. Additionally, financing an older car can often be more affordable, both in terms of monthly payments and overall cost. 

Myth 5: it's better to pay in cash outright on a used car 

Paying cash outright for a car can seem like a good idea, especially if you're trying to avoid debt. However, it's not always the best financial decision. Financing a car can provide benefits such as preserving your cash flow for other expenses or investments. By spreading the cost of the car over a period, you might also be able to afford a higher-specification vehicle than you might be able to with a cash purchase.

Myth 6: my credit score isn't perfect, so I won’t get approved 

Many assume that a less-than-perfect credit score automatically disqualifies them from obtaining car finance. However, there are numerous lenders who specialise in providing finance to those with a poor credit history. While you might not qualify for the lowest interest rates, you can still find reasonable finance options tailored to your situation. Improving your credit score can also open better finance deals in the future, so it's worth exploring your options rather than assuming you won't be approved. 

Myth 7: car finance is a long-term financial burden 

Some potential buyers worry that car finance will be a long-term financial burden. Car finance agreements come in various forms, with different terms and durations to suit your financial situation. Whether you opt for a Hire Purchase (HP), Personal Contract Purchase (PCP), or a lease, each type of agreement has its own benefits and flexibility. Many agreements also offer the option to pay off the finance early, often without penalties, should your financial situation change. 

Car finance is a versatile and accessible option for many people, regardless of their credit history or the type of car they wish to purchase. By understanding and debunking these common myths, you can make a more informed decision about your car finance options. Always remember to research and compare different lenders and finance products to find the best deal for your circumstances. With the right approach, car finance can be a manageable and beneficial way to acquire your next vehicle.