New car loans - the pros and cons

The biggest mistake most buyers make is to buy a new car without checking out their credit history and discovering whether or not they can support a new car loan. Check your credit profile via Equifax and Experian before you apply for a new car loan because any rejected applications will hurt your credit score. Once you have your credit rating to hand, you will be able to judge the loan rates that are available to you.

Those with good credit profiles could qualify for the leading loan rates in the UK – which are likely to be much lower than the rates you will pick up from your bank or through the dealer, which is why shopping around is so important.

If you have poor credit, it makes sense to enhance your credit rating before applying for a loan. If you don’t have time to do this, then be careful to shop around for rates based on your credit score to avoid rejections.

Making a down-payment is especially important with a new car loan as any money you can put towards the car will drastically reduce the amount you repay in the long-term. Think carefully too about the amount of money you are borrowing. If you borrow a large sum of money (£10,000 or more) you may find cheaper rates with secured loans but these will put your property at risk if you fail to make repayments.

The obvious advantage of a new car loan is that you own the car immediately and there are a huge number of lenders out there with no restrictions on thetype of car you drive or the mileage you clock up, which means you should be able to secure a good deal by shopping around. The disadvantage is that you will pay back more in the long-term, but this is negated if you know you can afford to repay relatively quickly.