When you're in the market for a new (or used) car, how do you pay for it? While some will dip into their savings, others will opt for a lease or car loan to cover the cost, and according to research from Experian, there's a clear generational gap when it comes to the decision…
The findings demonstrate clear differences in terms of car-buying habits, with much of it coming down to age. For example, older people are more likely to use cash or savings to cover the cost of a car – up to 70% among those aged 61 and over – while younger drivers appear to be taking advantage of affordable credit deals, and in doing so, they're able to skip a step, and move straight up to newer, more desirable models.
For example, one in five 18-24 year-olds surveyed now chooses to lease their car, more than double any other age group, with just 5% of 41-45 year-olds and 6% of 46-50 year-olds choosing this type of credit. This means that, astonishingly, more than half (51%) of those aged 18-24 say they drive cars worth between £11,001 and £20,000, meaning those opting for credit deals are taking on significant financial commitments to fund their more expensive tastes.
Not only that, but the survey shows that the older the driver, the less they've paid for their current car, with 32% of 36-40 year-olds admitting to having paid less than £8,000. Meanwhile, in terms of first cars, 43% of 25-30 year-olds paid between £8,001 and £11,000 for their first vehicle, and the majority (59%) of those aged 41+ paid less than £2,000 for theirs. In addition, 58% of 25-30 year olds said they upgrade their car every three to four years, compared with 31% of 41-45 year olds.
Despite the fact that so many younger drivers choose to take out credit to cover the cost of their car, they'll only be able to do that if they have a solid credit rating. Not only can it mean the difference between being able to afford your dream car or settling for an old banger, but the better your score, the more favourable a credit deal you'll be able to find, so it could pay to get yours up to scratch.
James Jones, head of consumer affairs at Experian, commented: "With credit being offered at some of the cheapest rates seen for decades, it is important that those seeking credit ensure their credit rating is as strong as possible. A strong credit rating will help them get access to the best deals they can afford, which could save them money in the long run."
Experian has compiled some additional tips to help those planning to buy a car on credit get the best outcome possible:
1. Do your research. Use calculators and comparison websites to understand the different options available, find out where the best deals are and what type of arrangement will suit your circumstances. If you're purchasing a used car, it is worth considering getting a provenance check to tell you whether your car has been stolen, written off, or has outstanding finance on it. If you're buying a new car, it is equally important to shop around with a realistic budget to find the best model you can afford.
2. Check your credit report. As soon as you make the decision to buy, check your credit report with all three credit reference agencies. Ensure everything is accurate and up to date and reflects your current circumstances. If you spot anything you believe to be inaccurate, contact the relevant lender and ask them to investigate the entry.
3. Room for improvement. If your credit report has areas for improvement, make a plan to get it into shape well before making your loan application. There are a number of steps you can take, including ensuring you're registered on the Electoral Roll, paying down outstanding balances to less than 50% of your limit, paying off more than the minimum repayments on your accounts each month and making sure never to miss a repayment. Improving your credit rating will put you in a strong position to get the best deals you can afford.
4. Don't overlook the details. Buying a car on credit is an investment that costs more than just a deposit and monthly repayments. Before you sign on the dotted line, make sure you've considered the additional costs and that you can afford to repay everything you'll owe when you make the purchase – additional costs can include things like insurance, fuel, maintenance and road tax. Meeting your monthly repayments on time should help keep you on the road to a strong credit rating, too.
5. Don't fall at the last hurdle. Right before you make your application, take time to do some last-minute checks. Check your credit report again to make sure nothing has changed and everything is accurate right before you apply, including checking the exact way your address and other personal details appear on your credit report. Small inaccuracies could see your application turned down, so don't overlook the details.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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