What Do First-Time Drivers Need to Know About Car Financing?

Your credit score matters

Finding out your credit score before you seek out a car finance package is sensible, because various things impact it, and you won’t get access to the most attractive deals if it’s low.

The problem younger drivers face is not having much of a credit history in the first place, so it can help to sign up for a credit card and use this responsibly, making purchases and paying off the balance as soon as possible, so that there’s evidence that you’re on top of your finances.

Age is a factor

The older you are, the greater your chances of being approved for an auto loan, or any kind of finance product.

Below a certain age, usually 18 or 21, you might not be eligible for any kind of deal with a mainstream provider, so take this into account when planning your car purchase.

However, so long as you are old enough to commit to a legal contract, age cannot be held against you by lenders.

Should you finance your first car?

Generally speaking, financing a car is a good idea, and it can make sense for first-time drivers if they can afford the repayments, and they are up to speed with the terms of the deal.

The main reason to sign up to this type of arrangement is that it allows you to purchase a more modern car than might otherwise be within your budget. Along with that you’ll get better safety features, better in-car entertainment tech, improved fuel economy and all the other bells and whistles you’d expect.

Interest rates are influential

The affordability of car financing is largely determined by the rate of interest that’s charged on the loan you take out to cover the cost of the vehicle.

You shouldn’t just look at the monthly repayments, but also at the total interest you’ll pay over the lifetime of the deal.

Higher rates will cost you more month by month, but lower rates stretched over a longer repayment period could be more expensive over time.

That’s why it’s so important to compare packages carefully, and don’t just get hypnotized by smaller monthly repayments, because these usually mean your cumulative interest costs will be steeper and it’ll take longer to repay everything.

Having financing in place before you visit a dealership is useful

It’s perfectly possible to walk into a car dealership, choose a vehicle you want to buy, sit down with the salesperson and sign up to one of their in-house financing offers.

The problem with this is that it won’t always give you access to the most suitable, affordable loans. It’s far better to get your financing organized before you set foot in a dealership, with loan pre-approval offered by a number of providers. That way you’ll be in a position of power, rather than having no choice but to go with what the dealership puts on the table.

Picking the right car is key

There’s no point getting a great rate on a car financing package if the vehicle you choose to buy with it isn’t fit for your needs.

Researching the available models in full is advised, as you need to think about things like how many seats you need, how much storage space is available onboard, and what kind of servicing costs you’ll have to fork out to keep it running.

Final thoughts

There’s always more to learn about car financing, but hopefully any first-time drivers out there have now got enough knowledge to navigate this marketplace more easily.