The Pitfalls of Car Financing 

Car financing can be a convenient way to get behind the wheel of your dream vehicle without having
to pay the full purchase price upfront. However, it’s essential to navigate this financial journey
carefully to avoid common financing pitfalls that could lead to stress further down the road.
In this guide, we’ll walk you through common car finance mistakes and give you a comprehensive car
finance checklist to ensure you have a smooth and cost-effective journey towards owning your next

 1. Not Checking Your Credit Before Applying

The importance of knowing your credit score

Your credit score plays a pivotal role in the interest rate you’ll be offered when financing a car. Failing
to check your credit score before applying for a loan can lead to disappointment, especially if you’re
declined or given higher monthly payments than expected. Lenders use this score to evaluate your
creditworthiness, so it’s vital to ensure your credit report is accurate. If your credit score needs
improvement, consider taking steps to boost it before seeking car finance to secure more favourable
terms. We’ve outlined how your credit score affects your car finance in our blog How Does Your
Credit Score Affect Your Car Finance?

2. Overlooking the Total Loan Amount

The trap of focusing only on monthly payments

It’s easy to get fixated on low monthly payments when shopping for a car loan, but this can be a
mistake. A longer loan term might offer lower monthly payments but can end up costing you more in
interest over the life of the loan. Instead of solely focusing on monthly costs, consider the total loan
amount and the interest rate to gauge the actual cost of your car purchase. This will help you make a
more informed decision.

3. Ignoring Loan Duration and Terms

How longer loan terms can cost more in the end

Extending your car loan to a longer-term might seem like a great way to reduce monthly payments,
but it can lead to higher overall costs. Longer loan terms often come with higher interest rates, and
you’ll be paying interest for an extended period. Be sure to understand the loan terms and choose a
duration that aligns with your budget and financial goals.


Top Tip: Take into consideration the age of the vehicle you’re looking to finance, if you take a longer
loan term, will you still want to drive that vehicle 5 or 6 years down the line? The answer might still
be yes, as many vehicles are still reliable at 12 to 15 years old.

4. Skipping the Fine Print: Hidden Fees and Penalties

Review the fine print

Don’t rush through the loan agreement without carefully reviewing the fine print. Some lenders may include hidden fees or penalties that can catch you off guard. Look out for prepayment penalties, late
fees, and any other charges that could add to the cost of your loan. Different loan types have different fees attached to them, for example, a PCP agreement includes a balloon payment at the end of your finance agreement if you choose to keep your vehicle, so it’s worth making sure that you’re able to afford this final payment.

5. Falling for Too-Good-To-Be-True Deals

Recognising and avoiding dealership scams

Dealerships may advertise tempting deals that seem too good to pass up. However, be cautious of offers that promise no down payment, zero interest, or exceptionally low monthly payments. Often, these deals come with strings attached, such as high-interest rates or hidden fees. Do your due diligence and research the offer thoroughly before committing. Researching the lender through online reviews are a great way to understand the dealership’s legitimacy, so read through their past and current customers are saying before signing anything.

 6. Not Shopping Around for Better Rates

The benefits of comparing multiple lenders

Don’t settle for the first finance offer you receive. Shop around and compare rates and terms from multiple lenders, including banks, credit unions, and online lenders like Marsh Finance. By doing so, you increase your chances of finding a loan that suits your financial situation and offers the most competitive terms. Many lenders offer soft searches, which gives you an idea of what your loan would look like without affecting your credit score, a big bonus if you’re shopping around.

7. Overextending Your Budget

The dangers of car finance FOMO (Fear of Missing Out)

Finally, avoid overextending your budget to buy a car that’s beyond your means, car FOMO can lead to financial stress and difficulties down the line. Stick to a budget that aligns with your income and
expenses to ensure a smooth car finance experience. While lenders should evaluate your affordability, the loan may still be stretching your own personal budget. There are plenty of great cars that fit any budget, so do your research to find your dream car that is still affordable to you.

Tips to Ensure a Smooth Car Finance Experience

1. Check your credit score: Monitor your credit and work on improving it if necessary.
2. Consider the total cost: Look beyond monthly payments to assess the real cost of your loan.
3. Choose the right loan duration: Select a loan term that suits your financial goals and budget.
4. Read the fine print: Scrutinize the loan agreement for hidden fees and penalties.
5. Research deals carefully: Investigate dealership offers before committing.
6. Compare lenders: Shop around to find the best financing terms.
7. Stay within your budget: Avoid stretching your finances to buy a car you can’t afford.

Being an Informed Borrower

Car financing can provide you with the means to drive your dream vehicle, but it’s crucial to make informed decisions to avoid car loan errors. By checking your credit, considering the total loan amount, understanding loan terms, and being cautious of hidden fees and scams, you can give yourself the best car finance practice possible. Remember, being a well-informed borrower is the key to a smooth car finance experience and a brighter financial future.

Ready to make a smart move towards financing your dream car? Take the first step today by applying for car finance with Marsh Finance! Our experts are here to guide you through the process, ensuring you secure the best deal for your needs and budget. Apply directly at


Representative Example

Rates from 12.9%

Representative example: borrowing £10,000 over 60 Months with a representative of 23.0% APR, an annual interest rate of 23.0% (fixed) and a deposit of £0.00, the amount payable would be 59 repayments of £269.58 per month, with one final repayment of £279.58 (which includes the option to purchase fee of £10.00), with a total cost of credit of £6,184.80 and a total amount payable of £16,184.80. Marsh Finance Limited are a lender, not a broker. 

Marsh Finance Limited are a lender, not a broker.

This is for illustrative purposes only and is not a quote or an offer of finance.