This guide on what is financing a car will look into how and why you may or not be able to receive a loan for a vehicle (essentially the definition of financing a car). This is usually arranged at a dealership but increasingly can also be done online. A more in-depth look at the different types of car finance deal you can get can be found here.
Car finance is an extremely popular solution to buying a vehicle, as many people may be unable to afford the large cash payment for a vehicle outright. You are also not necessarily tied to the vehicle forever, but can give the car back after a set amount of time having only paid a fee relative to the depreciation of the vehicle. A Kwik Fit survey found that there are 4.7 million UK motorists paying finance on a vehicle today, paying in total more than £1bn a month.
The most important thing to remember when applying for car finance is the same for any loan tied to an asset or not: your credit score. With a high credit score you will be able to secure a finance deal relatively easily, and there will be a wide range of companies willing to offer you a finance deal if they believe the vehicle is within your financial remit.
What is financing a car is agreeing to drive the car while paying in installments
There are also companies such as Startline that cater to ‘near prime’ customers. They may not have enough documentation such as home ownership to be placed into the prime finance category, but still have a reliable enough repayment record to be considered for a finance agreement, especially for a used vehicle.
Issues usually relate to those classified as sub-prime or non-prime, who for whatever reason may not be immediately considered reliable for regular car finance repayments. This does not mean that those on sub-prime cannot get finance agreements however.
There are specialist companies for this arena, although their risk appetite is dropping. For instance the most recent results from non-prime lender Advantage Finance, the non-prime car finance arm of S&U Financial, recorded a fall in acceptance levels for finance applications, from 31% in the first half of 2017 down to 25% in the first half of 2018.