Car finance is an affordable way to spread the cost of owning or using a car until the end of an agreed term. More drivers than ever are choosing to finance their next car and for many it can be easy to see why. You can choose a term that suits you, pay monthly payments in line with your budget and get the car you want. However, when interest rates rise, and the cost of living is higher than ever, how can you ensure that you’re getting the best car finance deal possible? There are ways in which you can help to lower your payments even before you start applying for finance. The blog below has been designed to help do exactly that and highlights the different factors that you can consider before you get a car on finance.

How does car finance work?

Car finance can come in a few different forms but in general, agreements usually follow the same structure. Hire purchase is one of the most popular forms of finance and is when a lender buys the car from a dealer, and you make equal monthly payments with interest til the end of the term to the lender. The value of the car determines your monthly payments, and this means that once the agreement has ended, you can pay a small option to purchase fee and keep the car. Only until this point will you own the car and throughout the agreement, the car will instead belong to the lender. If you fail to stick to the rules of the agreement, the lender has the right to take the car off you so it’s important that you can afford each and every payment.

Also Read: What Credit Score is Needed to Get a Car on finance?

How to get low monthly payments on car finance deals?

When it comes to getting a car on finance, you don’t want to be paying any more than you need to. It can be worth considering the below factors before you start applying for car credit.

1.      Reduce the term

When you get a car on finance, you can choose a loan term that suits you. Usually car finance deals are spread over 3-5 years, and it can seem attractive to spread the cost over the longest term possible to lower you monthly payments, but this can mean you take longer to pay off the finance and also are paying interest for long. Where possible, you should try to choose the shortest term possible but with a monthly payment schedule that you know you can afford on time and in full each month.

2.      Put down a deposit at the start

If you don’t have a deposit and need a car in a hurry, don’t worry, there are many affordable car finance deals with no deposit needed. However, taking time to save up for a deposit or having money to put down at the start of your agreement can be really beneficial. Car finance agreements such as hire purchase are calculated by the loan amount so putting more in can help to reduce your monthly payments.

3.      Increase your credit score

It can be possible to get a car when you have a bad credit score, but it can be better to take some time to work on your credit before you start applying. Your credit score reflects the risk to the lender and if you’ve missed payments in the past, you’re more likely to default on any finance or credit again. This can mean that lenders may be put off by your low score and decline you or set higher interest rates to secure the deal. It can be more beneficial to work on your credit score before you start applying to help get you a better deal and save you money.

4.      Choose low rates

If you’re looking to get a new car, you could benefit from interest rates as little as 0%! However, most car finance deals will require you to pay interest on top of your loan. A lower interest rate is better, and it can be a good idea to shop around for low APR car finance deals to help make sure you’re not paying more than you need to in interest.

5.      Get a cheaper car

For car finance deals such as Hire Purchase, the loan amount is equally divided into monthly payments with added interest. This means that choosing a more expensive car can increase your monthly amount. If you want to keep costs low, you could consider finding a lower specification car or an older model to help keep costs low.

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