Car finance is a great way to spread the cost of owning a car into affordable monthly payments. It allows you to get a newer and better car than you would get buying with cash alone and pay for it over a term that suits you. The price of both new and used cars can be high so it’s no surprise the majority of drivers now use some sort of finance or loan to help get their next car. But how can you make sure you’re getting the right deal and not pay more than you have to? Our guide below explains how to get cheaper car finance in 7 simple steps.
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Improve your credit score.
The first thing you should do before any application for credit or finance is to check your credit score. Your credit score can affect your ability to get a car on finance and also the deal you could be offered. A lower credit score makes you more risk to lenders you’ve probably had trouble in the past making payments on time or you’re no credit history to show. Lenders offer the best and lowest APR deals to those with good or excellent credit as they are less likely to default on future finance. If your credit is low, take some time to improve your credit score before applying for finance to reap the benefits!
Put down a larger deposit.
There are different types of car finance agreements to choose from and they may require a deposit contribution at the start of the deal. Deals like hire purchase can even ask for 10% of the value of your chosen car to secure the deal so it’s worth keeping in mind, there’s nothing wrong with no deposit car finance but you may not be getting the best deal possible. When you put down more money as a deposit at the start of the deal, you are making the loan amount smaller and reducing your monthly payments. If you want to get the cheapest car finance deal possible, you could consider saving up for a larger deposit.
Choose a longer term.
If car affordability and low monthly payments are your main focus, you could try extending your loan term. When you’re shopping for a car loan, you can choose your term, usually between 3-5 years, to suit your budget. When you extend your loan term, you will notice your monthly payments will become smaller, this is because you are taking longer to get the money back to the lender. If your sole focus is on lower payments, this can be a great way to do so. However, it may not be the cheapest option in the long run as you will pay more in interest over the term.
Compare different loans and cars.
When you choose a car to finance, a cheaper car will mean smaller monthly payments because the overall loan amount will be smaller. Car finance agreements like hire purchase will spread the value of your car and any interest into qual monthly payments so a more expensive car will increase the monthly amount. However it can be worth also exploring other options too. PCP deals can actually provide you with low monthly payments on a brand-new car due to the large balloon payment at the end of the deal. Take some time to compare both new and used cars on different types of finance deals to see which would be the most cost-effective for your situation.
Seek out the lowest APR possible.
Interest rates can be expressed by an Annual Percentage Rate (APR) which shows how much interest and any other fees you will pay over the term. A lower rate of interest helps to make your finance cheaper. Car finance with no interest to pay is usually only offered on brand new cars and most drivers will have to pay some interest on their loans. Shopping around for the lowest APR possible from different lenders and doing things to get a better interest rate such as improving your credit score can be beneficial.
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Make over-payments.
Over-payments are great to know if you’ve already got a car on finance or you want to make your next deal cheaper. If you come into a little bit of money and want to reduce how much you’re paying, you are allowed to make an overpayment to do so. Contact your finance lender first to let them know and then making over payments can help to pay off your loan faster. It could also reduce your interest too, making your deal cheaper overall.
Refinance your loan.
If you already have a car on finance and want to lower your payments, you could consider refinancing your current loan. Refinancing is when you replace your current loan with a new deal. Refinancing can be a good idea if your circumstances have bettered since you first got your loan, such as a better credit score or interest rates have lowered.
