Getting a car on finance can be a great way to help spread the cost of owning your next car. Car finance is a common way to help fund your next car and pay for it in affordable instalments. Your chosen car can be paid back in monthly installments with added interest over a number of years. Car finance allows many consumers to a car without having to use their rainy day find and you can normally get a better car than you would with cash alone. However, if you’ve never taken out car finance before, you may be wondering how you can get the best deal possible. The guide below has been designed with you in mind and can help make sure you’re not paying more than you need to for your next car finance deal.
Research car finance agreements
In the UK, there are 3 main types of car finance which tend to be the most popular. They are a personal loan option, hire purchase car finance and a personal contract purchase deal. We recommend researching each before you commit to one.
A personal loan can be the most straightforward way to borrow money for a car. This is because you would apply for an amount and if accepted it gets deposit into your bank account and you can then buy a car from a private seller or a dealer.
Hire purchase car finance is a secured against the vehicle you choose. Monthly payments can be higher than other options as you spread the cost of the vehicle with added interest. Once the final payment or ‘option to purchase’ fee has been made, you will then become the legal owner of the car.
Personal Contract Purchase is a form of hire purchase, but monthly payments can be lower. This is because you don’t pay off the full cost of the car and instead cover the cost of depreciation. At the end of your agreement, you also have three choices. You can choose to hand the car back to the dealer, pay the balloon payment and keep the car or use the value on another car with a new PCP deal.
Check your credit score
Your credit score can be really important when it comes to getting a car on finance. Many lenders will require a credit check to be performed on your credit file before they decide to accept you. You can use a free car finance check to see where you fall on the credit scale before you start applying. Having a good credit score can give you access to better rates as you are seen as less of a risk to the lender. Lower interest rates can help to reduce how much you pay overall and help keep costs as low as possible.
Save up for a bigger deposit
Some car finance deals will require you to put down a deposit before you get approved. For car finance agreements such as hire purchase, you may be required to put down a deposit of around 10% of your chosen car. Putting more in for your car finance deal can help to reduce your monthly payments and could also help to increase approval rates. If you need a car in a hurry though and don’t have a deposit to have, you can still benefit from many no deposit car finance deals with affordable monthly payments.
Choose a shorter loan term
Car finance agreements can be spread across 1-5 years. Choosing a longer loan term can be attractive as it reduces your monthly payments. However, you will usually pay a lot more in added interest. Where possible, you should try to choose the lowest loan term possible with the highest monthly payment you can. This helps to pay your car finance off faster but still keep your payments within a realistic budget.
Compare interest rates
As mentioned above, choosing a loan with a highest interest rate could mean you are paying more than you need to. You should take some time to do a car loan comparison and shop around for the best deal available with the lowest interest rate for your circumstances. You can get quotes by applying with different car finance lenders. However, we recommend sticking to soft search applications only as multiple hard checks in a short space of tine can harm your current credit score. A soft search credit check isn’t recorded on your credit file and doesn’t give lenders access to your full credit report.