Financing a used car is a great way to spread the cost of car payments and there are so many reasons why car finance can benefit drivers. From flexible plans to affordable monthly payments, it’s no wonder people are choosing to spread the cost rather than pay for a car in one lump sum. However, if you don’t do your research before taking out a car loan, it could be costing you more than it needs to. The guide below looks 5 expert tips to help lower your car finance payments and how to get the deal that’s right for you.
Before you read any further, it’s always worth knowing that car finance is never guaranteed, and it is always subject to status. Car finance lenders can’t promise they can give money to everyone, and they put checks in place to make sure you can afford a finance deal and also use a credit check to see how likely you are to pay back your loan on time. To help reduce the risk of not getting their money back, lenders may decline you if they don’t think you’re a suitable candidate for a loan.
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1. Perfect your credit.
As we’ve quickly mentioned above, credit scores are very important for car finance. Usually lenders will use a free soft credit check UK during the application process which will not appear on your file and helps to protect your credit score. However, an existing bad credit score can negatively impact your chances of being approved. If you have a low credit score due to missed payments or no previous history of borrowing, you are more likely to default on future loans which can put lenders off. If your credit is low, you should consider increasing your score in the run up to a finance application. Your credit score also affects the interest rate you are offered, and lenders usually reserve their best rates for those with better credit scores.
2. Choose the lowest APR possible.
Finance lenders use interest rates to make money off loans and credit. A higher interest rate offered to you means you will pay more overall. There are a number of factors that can affect the interest rate you get. You could get a 0% car finance deal on a new car which means there is no interest to pay but the cost of the loan tends to be expensive so monthly payments will be higher anyway. When comparing finance deals, you should try to select the deal with the lowest interest to help make the cost of borrowing cheaper.
3. Put down a larger deposit.
If you don’t have any savings to put down for a deposit, don’t worry, many finance deals now come with no upfront payments. However, if you want to lower your car finance payments, you could consider putting down more money at the start of your agreement. A larger deposit helps to reduce the loan amount and a smaller loan can be spread across or a shorter term or means you can pay smaller monthly payments. Some car finance deals UK do require a deposit of around 10% of the purchase price of the car so it can be worth thinking about before you even set foot inside a dealership.
4. Explore different finance agreements.
In the UK, there are actually a number of finance agreements to choose from. Personal Contract Purchase deals tend to offer low monthly payments, even on brand new cars which can be great if you’re solely focusing on low payments. However, its not be best agreement if you wish to own the car at the end as there is a large balloon payment to pay in order to take ownership. If owning the car from the start is more your thing, personal loans can offer some of the best APR deals for people with good credit and is usually the most cost-effective way to buy a car. It can be worth exploring each in more detail before you commit to taking out finance.
5. Refinance your loan.
In some cases, you may not get the best deal for your current financial situation, but it may be the only option available at the moment. Many drivers usually take out finance to help improve their credit. As long as you meet each and every payment, along with any other financial commitments you have, you could be increasing your credit score along the way. Once you’re halfway through your agreement and in a better financial position, it could be worth refinancing your current loan to a new car loan refinance with better terms or lower payments.