Approval for car finance is easy to get, but the overall cost may very well drain your finances. People put months and years of their savings for the down payment only to get some budget-breaking instalments. The lenders try to focus the negotiation around some irrelevant factors to the loan to strong-arm even the most perfect applications. 

You don’t have to be an expert in the loan process to counter the arguments of the lender. Only some factors contribute to your loan affordability and profile that needs to be taken care of.

In this blog, we have mentioned those factors that affect car finance to prepare yourself.

Credit Score

The credit score is the report card for your financial decisions and mistakes. Every missed payment and defaults for the loan are mentioned in it. The overall ratings define the risk profile of your application.

The lenders will offer better interest rates to the applicants with the perfect credit score because of less risk. They are seen as responsible borrowers among the others who often find themselves in the financial troubles. A lower credit score will hinder your chances of favourable terms to a great extent.

You can still get car finance in Ireland for bad credit with the help of private lenders. They also offer instant decisions and flexible terms. However, the interest rates may differ from the banks.

Down Payment

The down payment is an essential aspect of any mortgage or loan. A more significant down payment reduces the risk for the lenders. Therefore, they are more willing to approve the loan application.

For you, it means a lower loan amount to repay. You will save money on the overall cost of the loan courtesy of low interest paid during the loan tenure. Also, the instalments will be more manageable for the same terms.

It is recommended to wait for a few months more to increase the down payment, if possible. Otherwise, a bridge loan can help you with the down payment. Some lenders offer 12 months moratorium period to the borrowers. 

Loan Term

Short- and long-term loans have a different impact on the eligibility and affordability of the loan. The long-term loans are less of a risk for the lender as the instalments seem more manageable to the borrowers. Also, is provides returns for years to the lenders.

The short-term loans are comparatively riskier because of hefty instalments each month. As a borrower, you save money because of the reduced overall cost on loan. You will have another line of credit available because of early repayment.

You must think of the instalments before the overall cost of the loan. The money saved over time is sometimes not worth the risk of default. There are repayment holidays offered in between for longer terms to help the borrowers during the financial troubles.

Vehicle Age

New vehicles receive priority for car finance because of their resale values. Expect lower interest rates and favourable terms when you opt for a new car. Which means buying a new car can save you some money on the overall cost of the loan.

The used cars may not be a popular opinion for the lenders, but they are indeed budget-friendly. You are saving a lot of money on a car in good condition that is a few years old. Comparing the two deals is not easy until you have some bias towards new or used.

Debt-to-Income Ratio

You need a regular income and a perfect credit history to become the favourite borrower for the lenders. However, the income may guarantee the loan but not the loan amount. Debt-to-income ratio determines the affordability for a loan amount.

Even some heavy paycheque lands in the rejection list because of the applied amount. You can increase the chances of approval by adding some additional income before the application. Start a side gig, work overtime, or make your spouse a co-signor to get some great offers.

To sum up, these are the most prominent factors that affect car finance eligibility and terms. You can start preparing your profile a few months before the application. By the time of negotiation, you will have a profile to get the desired terms.