10 tips to get cheap car financing

If you’re looking to finance a new or used car, there are a few things to check to make sure you don’t spend more than you need to. Personal contract and installment purchase plans are the most popular way to finance a car, so we’ve tailored our advice to these financing methods.

Our recommendations will help you get the best deal, making sure you save the most money while getting the car you want. If it’s a used car you’re after, also be sure to check out our guides on how to check if a car has outstanding financing and what an HPI check is.

It’s about the APR

The APR figure shows the level of interest and other mandatory charges that are issued when you borrow money. The higher the rate, the more you’ll pay, although there’s a big exception when large deposit contributions are available (you can often find them in PCP deals for new cars and installment purchases), as these finance discounts aren’t factored into the APR figure.

No matter how you’ve dealt with your previous car, you should always check the market before you buy to set your expectations. Interest rates may be higher or lower than the last time you bought a car, so doing a little research will help you better identify the best deals.

Free Car Financing Calculator Tool – Quickly Compare Used Car Financing Quotes

If you buy a new one, most people choose a PCP plan (Personal Contract Plan), since it most often offers a lower monthly payment. Make sure the dealership is clear on not only the APR, but also any deposit contributions that are included. Remember that although a ‘£4000 deposit contribution’ sounds tempting, when combined with a higher interest rate, you may not be any better off.

When buying a used car, PCP financing may still be an option, but it depends on the age and mileage of the car. For this reason, more used purchases are made at HP (Installment Purchase). There may be room for negotiation on a used car’s APR, so be sure to talk to the dealer and don’t agree to a deal just because it’s within budget.

In either scenario, it may be worth talking to your bank or an independent finance specialist for guidance on what payment rates are offered.

Good credit ratings equal good financial offers.

Credit scores identify how risky it will be to lend you money; Lenders may still offer financing if your credit isn’t perfect, but they may want a higher deposit or charge a higher APR. We have divided our guide into three here depending on your rating.

Excellent – If you have a high credit score and never miss a payment, lenders are more likely to offer you their best rates. We suggest looking into what the lowest rates a dealer is currently offering, but remember to bargain whenever possible to get the best deal. The vehicle and any extras are also part of your total cost, so make sure you take this into account.

Okay – You may have had a problem years ago or missed occasional payments, but still have a good overall credit rating. Lenders are less likely to offer their prime finance rates if this is the car, but they’ll still want your business. Make sure your budget takes into account a slightly higher rebate rate on the car you want to buy.

Poor – If you have a bad credit rating, financing a new car can be more difficult, but it’s often not impossible. First, if a distributor finances through a bank or finance company with which they have a good relationship, they are more likely to consider and accept it. Second, don’t sign up for any APRs just to get a deal. Most reputable banks and finance companies will not offer a deal that has an exorbitant interest rate, as this hampers the customer’s ability to pay. Be sure to check that the interest isn’t so high that you can’t repay the full amount you borrowed.

With deposits, size matters

Having a larger deposit reduces the risk for a lender since you are lending a smaller proportion of the value of the car. If you are lucky enough to have a large deposit or have a large amount of capital on your exchange, then banks see it as a safer option. Some financial offers require large deposits to achieve a particular offer, so if you have substantial savings, look into them as a way to lower your monthly expenses.

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Before you test drive a vehicle, make sure you can pay the deposit and subsequent refunds. It can be easy to see a monthly payment that’s affordable and then find out that the required deposit is much higher than you’ve budgeted, making the regular payment much higher than you wanted to pay.

Assess waste

The value of your car at the end of the financing agreement is important, and some cars hold their value better than others. Choosing a car that is right for you, but also has a high resale value, can lower your payments when you use a PCP (Personal Contract Plan). The higher residual value means a higher proportion of the total amount is deferred, but remember you’ll pay interest on the total amount, including any balloon payments.

Residual values ​​are also worth remembering, even if you’re financing with HP (purchase lease). The more your car is worth when you’re done paying for it, the more deposit you’ll have for your next car.

keys to the financing agreement

don’t forget to haggle

Demand for new and used cars can come and go, so even when the market is busy and dealers are selling cars quickly, there may still be room to haggle. It can be as simple as asking if the dealer is willing to offer a discount or insisting on more money for the part.

If the market is strong and cars are selling quickly, then your parts swap may also be more desirable; remember, it’s not a one way street when shopping. The most important thing is to negotiate the payments, the interest and the total amount, according to the figures with which you feel comfortable.

Set realistic mileage limits if your offer includes them

If you want to purchase a vehicle using a method that has a guaranteed future value (GFV), you will need to agree to a mileage limit. This is so finance companies can predict how much the car will be worth at the end of your deal.

Be sure to be realistic and not sign up for a very low mileage limit just to keep your payment low. Take a look at old MOT certificates again if you’re not sure how many miles you drive in a year. It’s also important to allow yourself some leeway in your agreement; If you regularly drive 8,000 miles a year, sign up for a deal that gives you a little more so you don’t have to worry if your mileage increases slightly.

If you exceed the agreed mileage, you may have to pay an excess mileage charge. This can range from three to 30 cents, so if it’s the lower end of that spectrum, it probably won’t cost you much to spend a little more; An additional 1,000 miles could add as little as £30 to your overall deal.

The car makes the difference

Certain cars can make a difference in the terms of your finance contract, especially if they are rare or highly sought after. There are many specialist finance firms that deal with unusual or rare cars, or those that have been modified. Examples could be vehicles that have been converted for camping or wheelchair use, as well as supercars that major finance companies may choose not to deal with because the risk profile is too high.

It’s essential to shop around for yourself to get the best financial deal if you want a car like this. The dealer may have a company that he uses for specialized vehicles, but without knowing if they are offering him a competitive offer, he may sign up for a more expensive offer than he could have gotten by searching online.

Number of credit checks you have had in the last 6 months

If you’re planning to buy a car, you should be careful not to go through too many full credit checks, especially for other major purchases.

Banks and finance companies may see this as risky: taking on several major financial deals could, in theory, reduce your ability to make payments. It’s okay to use your credit card to make purchases, but make sure you’re not committing to several big financial deals right before you’re shopping for your next car.

If you’re recovering from bad credit, build a score before you buy a car

If you’ve previously struggled with poor credit, it may be difficult to get accepted for auto financing. An important tip is to build up your credit score to the best of your ability before trying to secure a competitive deal. Cars are often the second most expensive purchase people make, so it’s important not to get caught up in shopping for a car and then accept whatever payment is offered, just because your credit isn’t perfect.

Beware of optional extras, ‘the cost of a coffee a month’ adds up fast

Remember that salespeople are trained to whip you as hard as they can. This can be helpful when they identify something you really wanted, but a few extra pounds a month can add up. You have to be careful not to overwhelm yourself with the extras and end up paying more than you wanted.

Adding many options to a PCP deal adds to the total cost of the extra, but doesn’t necessarily increase the residual value of the car. This can greatly increase the total amount you finance.

Stick to your budget limit and be ready to walk away

The best way to determine which financing agreement offers you the best value is to obtain comparable quotes, with the same financing type, deposit, contract length and mileage allowance.

The same car might cost £100 a month with a large deposit, long contract and low mileage allowance, but it jumps to £400 a month with no deposit, short contract and high mileage allowance. You can only make true comparisons between cars or finance offers by getting quotes with matching contract terms.

It can be incredibly tempting to accept an offer, especially if you’re buying a used product and have been looking for a particular color or spec and missed it before. New buyers can face the same difficulty when stocks are low, but the dealer has the car they want. Add a test drive and suddenly you’re looking at a financial deal with a pen in hand.

It is important to have some goals in mind and stick to them. Instead of telling the dealer that he’s just looking around, make it clear that he’s not sure exactly what he wants, but knows exactly how much he has to spend. You can find the perfect car at your first dealership or online showroom, so make sure you have your limit set from the start.

Check out our guides should you lease or buy your next carY car subscriptions.

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