Buying your first car is a big deal, and it’s easy to get fixated on the fun side: the make, the model, the colour, while the financial stuff creeps up on you. The thing is, the price of a car isn’t just what it says on the sticker.
Before you sign on the dotted line, there are a few financial boxes you want to tick. Get the foundations right, and you might steer clear of some of the first-time buyer pitfalls.
What Your Credit Score Actually Does
Your credit score will have a direct impact on the financial deals available to you. Lenders use it to decide how much of a risk you are to lend to, which affects both whether you’re accepted and what interest rate you’ll get. A higher score generally means a lower APR.
If you’ve never borrowed before, your score might just be thin, not bad. You can build it up by registering on the electoral roll, using a credit card for small purchases and paying it off in full each month, and making sure there are no errors on your credit file. It’s worth checking your report before you apply for anything.
How to Check Finance Options Without Damaging Your Score
One thing that trips up first-time buyers is applying for finance in multiple places without realising that hard credit searches leave a mark. Too many in a short space of time can actually lower your score.
Using a car loan eligibility checker lets you see what you’re likely to qualify for before any formal application is made, so you can shop around without the risk.
Once you know roughly what you’re eligible for, you’ll be in a much stronger position to compare deals and negotiate.
Insurance: Budget for It Before You Fall in Love with a Car
Young drivers often find they can end up paying more for insurance than for the car finance. The same is true for the type of car you buy – engine size, insurance group, and even security features can affect costs.
Always get insurance quotes before you decide on a particular car. A car which at first glance looks like a good deal could push your total monthly outgoings significantly higher. Always check quotes from a number of different providers too, as the price of insurance can vary widely even for the same car.
The True Cost of Running a Car
Finance and insurance are the obvious costs, but there are several others to account for when setting your budget:
- Fuel: petrol and diesel costs add up quickly, especially for longer commutes
- Road tax (Vehicle Excise Duty): the rate depends on the car’s CO2 emissions
- MOT and servicing: older cars often need more maintenance
- Tyres and wear: a cost that’s easy to overlook until something needs replacing
- Breakdown cover: optional but worth having, particularly for used cars
Adding these up gives you a much more realistic picture of what the car will cost each month. A lot of first-time buyers underestimate this and find themselves stretched.
Read the Finance Agreement Before You Sign
Sounds obvious, but it’s easy to overlook. Finance agreements are long-term contracts, and the devil’s in the details. Make sure you notice how much you have to repay in total, not just the monthly payment. A low monthly payment can hide a high total price, if the term is long enough.
What happens if you decide you want to get out early? Is there a balloon payment at the end (PCP deals often come with a substantial final payment)? Are there excess mileage charges (being a little over the agreed mileage can mean getting hit for unexpected charges at the end of the deal time period)?
And are you being asked to commit to a fixed APR (Annual Percentage Rate), or is the rate variable? A fixed interest rate gives you certainty for the length of the agreement, while a variable rate could rise and fall in line with market conditions.
What This All Means for You
Getting your finances in order first will make the whole process of getting your first car less of a strain and more likely to go your way.
Know where you stand credit-wise, understand how much you can afford each month when all costs are taken into account, and read every agreement before you sign. A bit of time taken here saves a lot of pain later.