“Nothing in life comes with a guarantee.” Who said that? Well, whoever it was, they were certainly not wrong!
But does that mean you should stop trying (or not even bother) when seeking to secure something like car finance or a loan for another purpose, when you’re coming at the entire application process from a weak position, that is? The answer is a definite NO. Engaging in wishful thinking won’t help – injecting a little realism can be useful.
You may have really bad credit (an extremely low credit rating), and you might have been recently made bankrupt, have a County Court Judgement against you, be well behind with your mortgage payments, only work part-time, or be unemployed and struggling to survive on Benefits, but that doesn’t necessarily mean getting a car is beyond your grasp.
But, given your current circumstances, is taking on a car loan really the right thing to do?
It’s essential to be honest with yourself
People can feel incredibly emotional about cars. A powerful attachment can form even falling hopelessly in love with ‘the car of dreams’. The prospect of having to possibly give it up one day (through being unable to meet the loan repayments) can feel surprisingly upsetting, and the reality devastating.
It’s true. Buying a car is certainly a lot different to purchasing a kettle, a toaster, some decking for the back garden, a washing machine, a new laptop, or… well, you get the gist! Cars are different. They always have been. That’s why the longing so many people have to get a new set of wheels can cloud their judgement. When the need to secure finance and get on the road as soon as possible becomes all-consuming, potential borrowers can tell themselves lies as they do their sums at the dining room table or down the caff. They can ignore the stark financial facts and, at a car dealership, sign up to agreement that in reality they haven’t got a reasonable hope of fulfilling.
“Even though I only had Jobseeker’s Allowance and some Housing Benefit towards my rent coming in last year, I still (wrongly) convinced myself that I could make car loan repayments each month if I kept an even tighter grip on my weekly spending,” explains Danielle in Watford (Herts.). “My thinking was: if I had a motor I could cast my net wider when looking for employment. But it didn’t work out that way. By taking on the car finance, I overstretched myself and ended up having to sell the vehicle with finance owing on it! My advice to anyone on Benefits considering getting a car leasing agreement, a car loan, or a vehicle on Hired Purchase, is to be one hundred per cent honest with yourself when calculating if you can make the payments. If you’re in any doubt, sign nothing.“
Getting that car – the options
So, Danielle’s heart was in the right place – she wanted to join the workforce, better herself, and improve the quality of life for her kids – but she miscalculated prior to picking up the phone and trying to arrange car finance with a dealer or motor finance specialist. And notice how she mentioned three different ways of possibly getting a car:
- Car Leasing – you pay monthly for a car, but never actually own it
- Car Loans – you make monthly repayments and interest payments, and then keep the car once the loan has been fully repaid. However, you can still sell the vehicle halfway through the loan agreement (with finance owing on it) if you need to
- Hire Purchase Agreements – here, you’re hiring the car until the final payment is made. If you miss a payment or can’t continue making monthly hire charges, the car goes back to the dealership, unfortunately
“I’d urge anyone on Benefits thinking of getting car finance to try and purchase a second-hand car first, actually – one that’s for sale at the local dealership or advertised in the newspaper or a motoring magazine,” continues Danielle. “OK, it’s not going to be the most reliable motor going, but at least it’ll get you on the road and it’ll be yours, no one can come and demand it back (through missed repayments). Just look for a low-cost run-around. And make sure you take into account all the other car-related expenses before buying: road tax, car insurance, running costs, etc.“
Be prepared for higher repayments
So, Danielle was unable to make the car loan repayments as, being a Benefits claimant, she was required to make higher than normal payments on the car loan, as well as interest. This is something that anyone on Benefits who is seeking car finance should expect. Because most lenders will see you as ‘a risk’, they’ll probably set the repayments higher than normal, to ensure they get their money back sooner rather than later.
Yes, it’s somewhat ironic that those struggling on a low (primarily Benefit-funded) income are expected to pay more for car finance, but it’s just the way it is, the way it works. You may also find that, even if one of a panel of lenders that a dealership uses approves your application, you’ll probably only have a limited number of car models to choose from.
To avoid all these potential problems and stumbling blocks to securing car finance when on Benefits, and to get a unique solution instead, look for a reputable finance company; one that’s willing to look after you with a realistic offer based on your circumstances.