Are you looking to get a car on finance? Not sure how to get the cheapest deal possible? We’ve got you covered! The guide below has been designed to help explore the factors that affect your car finance rate. Lenders set finance rates based on a number of factors. However, it’s not just your rate that will determine how much you pay for finance. Other factors such as deposit contribution, the type of car finance you choose, and the size of the loan can affect your monthly payments. Once you have a finance approval in place, it can be hard to know if you’re offered the best deal. Let’s take a look at the factors you should consider and the steps you can take to get a cheap car finance deal.
Understand APR
Before you start searching for car finance, it’s worth exploring what is meant by interest rate and APR. Your interest rate offered reflects the rate of borrowing. A higher interest rate means you pay more back overall. Your interest rate and APR is factored into your monthly payments so it’s best to have the lowest interest rate possible. Factors such as your credit score, loan amount and loan term can all affect interest rates. It worth comparing a number of lenders to find the lowest interest rate offered for your circumstances.
Explore types of finance
It’s a common misconception that car finance is a one size fits all agreement. However, this is not the case. In the UK, there are 3 main types of car finance agreement that tend to be the most popular. It’s worth exploring each agreement in more detail as you could benefit from a lower interest rate or lower monthly payments, depending on what you want from your car finance deal.
Personal loan. A personal loan can be offered by a bank or building society and can be used to purchase a car outright. If accepted, a lender deposits your chosen amount into your bank account which you can use to get a car from anywhere. You then make monthly payments with interest till the end of an agreed term.
Hire purchase. Hire purchase is a really straightforward way to spread the cost of your next car. Hire purchase is a secured loan which means the car belongs to the lender throughout the agreement. You will make monthly payments with interest to cover the cost of the car over a number of years. Once the agreement has ended, you can then hand the car back or pay the small option to purchase fee to keep the car.
Personal Contract Purchase. A Personal Contract Purchase or PCP deal is a flexible way of paying for your next car. Instead of covering the full cost of the car like hire purchase, you instead make lower monthly payments to pay off the depreciation. At the end of the agreement, you can choose to hand the car back to the dealer, pay the balloon payment and keep the car or use the value towards a new car on PCP.
Increase your deposit
If you want to lower your car finance payments, you can consider saving up for a car finance deposit. Putting more down for your deal can help reduce the loan amount and also increase acceptance rates. Some car finance agreements such as hire purchase can request that you have a down payment so it’s worth considering before you start applying for finance.
Build a credit history
Many people assume that having no previous credit history means you will automatically have good credit. However, credit scores are all about future predictions and if you don’t have any previous experience, you may find yourself with a low credit score. It can be possible to get car finance no credit history but building a small credit history can help to reduce your interest rate offered.
Stick to your budget
When it comes to getting a car, affordability is really important. You should never agree to a car finance deal that you know you can’t afford to pay back as it can lead to serious financial consequences. You should work out your budget by looking at your income and taking off your expenditure and then working out how much you could comfortably put towards your finance deal each month. Don’t get pulled in by added extras at the dealership as you can end up paying more than you need to.
Part exchange your current car
If you’ve got a car already, you may be wondering ‘is it worth part exchanging my car’? In many cases, it can be a good idea. You can use the value of your current car to offset the price of your new car. A car dealer can give you a valuation for your current car which you can then use as a deposit towards your next car, and it saves the hassle of you trying to sell your current car.
Make payments on time
You can help to increase your credit score for car finance by making all your current financial commitments on time and in full. Having a good track record of being able to meet repayment deadlines can show future lenders that you can be trusted to pay back your finance. A better credit score means you are less risk to lend to and can help to reduce your interest rate offered.