Car finance myths you need to stop believing

Car finance is one of the most popular ways to buy a vehicle, but misinformation could lead drivers out of pocket. 

Searches for car-finance related myths, such as 'car finance credit score' have surged, with over 1,000 people turning to Google each month over the last year. Additionally, searches for 'overpaying car finance' have jumped 950% year on year.

Many consumers may be paying more than necessary due to these misconceptions. Not understanding the full terms of a finance agreement or missing out on better suited options can result in higher overall costs.

To help drivers make informed decisions, we've cleared up some of the biggest misconceptions.

Myth 1: you need a perfect credit score to get approved 📈

While a higher credit score can help secure better interest rates, it's not the only factor lenders consider. Income, employment stability and affordability checks play a major role in car finance approval.

Even if you have a low credit score, there are specialist lenders who offer finance options designed for those with less-than-perfect credit histories. However, you may face higher interest rates if your credit history isn't strong.

Myth 2: a bigger down payment always saves you money

While putting down a larger deposit can reduce your monthly payments, it's not always the smartest financial move.

Allocating too much upfront might strain your finances and in turn impact your affordability, meaning in some cases, it might be more beneficial to keep that money for emergencies or other expenses.

The key is balance, only put down what you can afford while keeping some financial flexibility.

In some cases, the interest savings from a bigger deposit may be minimal compared to the security of having extra funds available.

Myth 3: financing through a dealership is always more expensive 💰

This is not always necessarily true. Dealerships often have access to various financing options and can offer competitive rates.

That said, it's always wise to compare rates with banks, credit unions or online lenders before committing, to ensure you're getting the best deal. Shopping around is key whilst also ensuring you're going to a reputable lender.

The key is to look beyond the monthly payment, check the total cost of borrowing, including interest and additional fees, to ensure you're getting the best deal.

Myth 4: paying off a loan early always saves you money 

While paying off a loan early can reduce interest costs, some finance agreements include early repayment charges. It's essential to review your contract's terms to determine if any penalties apply.

For instance, some agreements allow early repayments but may still charge a 'settlement fee', sometimes equal to a couple of months' interest.

Before overpaying or settling early, check your finance agreement to see if you'll save money.

Did you know... we don't charge our customers a fee for making extra repayments or settling their vehicle finance agreement early?

Additionally, closing a loan early can temporarily impact your credit score by reducing your credit mix or shortening your credit history.

While not a huge concern, it's worth considering if you plan to apply for other loans soon.

Myth 5: leasing and financing are the same thing 📄

Leasing and financing work very differently. Leasing is essentially renting a vehicle for a set period, after which you return it, often with mileage restrictions and potential fees for wear and tear.

Financing, on the other hand, involves purchasing the vehicle through a loan, making you the owner once it's paid off in full.

Leasing often has lower monthly payments but comes with more restrictions, while financing usually means higher payments but full ownership at the end of the contract.

Each option has its pros and cons, depending on your driving habits and long-term plans.

Myth 6: You must finance through the dealer selling the car

You're not obligated to finance through the dealership. In fact, shopping around can sometimes get you a better deal.

By securing pre-approval from a bank, credit union, or specialist lender, you can approach the dealership with a clear budget, potentially giving you more negotiating power.

Car finance can be a great way to spread the cost of buying a vehicle, but believing in common myths could leave you paying more than necessary. Always read the fine print, compare multiple options and understand the true cost of your loan before signing any agreement.