If you’ve never taken out finance or a car loan before then you may be looking for an extra little bit of guidance. Making sure you get a deal that’s right for you is really important and no one wants to pay more than they have to! So why settle for anything less? It’s a common misconception that car finance can be expensive and have high interest rates, it doesn’t have to be. Let’s take a look at the ways you can get the cheapest car finance deal possible.
Work on your credit score
Have you got a good credit score? Great, you’re off to a flying start! Many car finance lenders use your credit score to get an inkling of what type of borrower you are. If you have a solid history of meeting your repayment deadlines, you will usually be more favourable to lenders. Having a good credit score also means you can benefit from lower interest rates and are more likely to get approved for a car loan.
But what if you have bad credit? Don’t worry, there are many bad credit car finance specialist companies who help people get approved for an affordable finance deal. However, if you want to get the best deal possible, it’s a good idea to improve your credit score before applying for finance. This can mean that you are more likely to get accepted for finance and get offered a better finance deal. If you already have high levels of existing debt, you should consider clearing your existing debts first before you start applying. Meeting your repayment deadlines each month is really important as it shows good financial responsibility to potential lenders.
Save up for a deposit
If you don’t need a car right now, you should consider saving up for a finance deposit prior to your car loan application. Putting down a car finance deposit can reduce the amount you need to borrow for the lender. This can help you to get approved if you have bad credit and can also lower your monthly payments. Having a car finance deposit for a Hire Purchase car finance agreement can be really beneficial as the loan is split into affordable monthly payments.
Shop around
A common car finance myth is that shopping around for car finance is bad for your credit score. In a recent survey of Refused Car Finance customers, nearly 80% of customers thought that it did negatively affect your credit score, however, this is not true. If you are shopping around for car finance, you should stick to soft search credit checks only. A soft search credit check is a type of check a car loan lender uses to look at your credit file. It is an initial check which isn’t recorded on your credit file and isn’t visible to other lenders.
You could consider using a car finance broker who can help to shop around for you. You only need to apply with a car finance broker once using a soft search credit check and they do all the leg work for you. A car finance broker acts as the middleman between you and the lender. They have access to a wide lending panel and can even help people with bad credit.
Don’t focus on the monthly payment
Don’t focus on the monthly payment
Most people have a monthly finance budget in mind when they apply for finance. You should never borrow more than you can afford to pay back as it can result in serious financial problems. When working out your car loan budget, you should also take into account the length of the finance term and the agreed interest. Spreading the cost over a longer term can reduce how much you pay each month, but it also increases how much interest you pay overall.
Research different types of car finance deals
As mentioned earlier, a car finance deposit is great for a hire purchase deal but what about other types of finance and which is best for you? Depending on how much you want to pay, your credit score and how often you want to change your car, you may be better suited to a car finance deal over the others. The most popular car finance agreements in the UK include a personal loan option, hire purchase car finance and a Personal Contract Purchase agreement.
Personal loans are usually offered by banks or building societies and can be harder to obtain if you have bad credit. Personal loans tend to be the cheapest way to finance a car. You would apply for the amount you want and if accepted you will then pay back your agreed loan, to a set term with added interest. The loan can be used for anything you want so you aren’t limited to a new or used car and you will also be the automatic legal owner of the car so you can do what you want with the car.
A hire purchase car finance deal is really straightforward. You spread the cost of a chosen car into monthly payments with added interest. At the end of your agreed term and once you have made all the repayments on time, you will then own the car. It’s also good to note that the loan is secured against the car throughout the agreement, this means that if you fail to meet to repayments, the finance company have the right to take the car off you.
A personal contract purchase deal is similar to a hire purchase deal. However, you don’t spread the cost of the full car so monthly payments can be lower than other options. This is because, at the end of the agreement, you have three options instead of just owning the car. You can pay the balloon payment and keep the car, use the resale value of the car for a new PCP deal or you can hand the car back from the dealer and walk away.
So getting the cheapest car finance deal, depends on a number of factors. I hope this post has been useful for you.
*Collaborative post
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