Disclosure – this is a collaborative post
For many people, getting a car is the second most expensive purchase you will make in your lifetime! For this reason, it’s important to get the best deal possible. But how can you ensure that you are getting a good deal and a finance agreement that’s right for you? Whether you’re buying new or used, there are a few ways in which you can help to save money on your finance offered! Let’s take a look.
5 ways to get a better car finance deal
Calculate your loan
Using a car finance calculator before you start applying can help you to get an idea of what loan amount you could be offered. You only need to set your car finance budget, the duration of your preferred loan and what your current credit rating is to get an accurate quote. You can then use this amount to shop around for cars within your budget! It doesn’t affect your credit score and won’t be recorded on your credit file either.
Explore different finance options
Many people think car finance is one size fits all but not all car finance agreements are the same! Depending on what you want from your agreement, you may be suited to one rather than the others.
– Personal Loan. A personal loan is a type of car finance which is offered by banks and building societies and can be used for pretty much anything. You would apply for a certain amount and then pay it back in monthly instalments with added interest. You can then buy the car you want from any dealer or private seller.
– Hire Purchase. Hire Purchase is a secured loan. This means that the value of the loan is secured against your chosen vehicle. You would apply for finance on a car of your choice and then pay it back monthly with interest. However, it should be noted, if you fail to meet the repayments, the lender has the right to take the car off you. Once the final payment has been made, you will then own the car yourself.
– Personal Contract Purchase. Personal Contract Purchase (PCP) is similar to Hire purchase, but you don’t spread the cost of the whole car into monthly payments. Your payments tend to be lower as you only cover the cost of part of the car. You then have three options at the end of the agreement. You can either hand the car back to the dealer, use the value to start a new PCP agreement on a different car or pay the large ‘balloon’ payment and keep the car.
Increase your credit score
In general, people with better credit score get offered better car finance deals. This can mean being offered both lower interest rates and lower monthly repayments. For car finance lenders, it’s all about risk. The risk they take to lend you money and if you will pay it back. Your credit score can reflect how good you are at managing your money and meeting repayment deadlines. You can improve your credit score by meeting your repayment deadlines, clearing any existing debt, fixing any mistakes on your credit file, and keeping your credit utilisation low.
Save up for a deposit
Having a deposit for your car finance is beneficial for both you and the lender. Putting in a deposit means that you don’t have to borrow as much from the lender and for some agreements, you are required to put down a deposit. If you can, you should save up for a deposit in the months leading up to your car finance application.
Consider your loan term length
Typically, car finance agreements are paid off over 3-5 years. By increasing your loan term length, you will typically be offered lower monthly payments. It can be tempting to take the lowest monthly payment. However, this can instead increase how much interest you pay overall. Where possible, you should choose the shortest loan term with the maximum amount you can afford to pay each month.
