Getting a car on finance can be one of the biggest purchases you will make in your life. Car finance agreements are also usually taken out over a number of years so it’s important you get the right price and a loan term that’s right for you. When shopping for car finance, many people usually want to find the best and lowest interest rate possible to help save money. There are a few ways in which you can help to lower your interest rate offered in a few easy steps!
What Is a Car Finance Interest Rate?
Interest rate in terms of car finance agreements is how much you will pay in additional charges which is accumulated above the sum of money borrowed for a car. You will make monthly repayments for your chosen car and pay interest on top. Interest rates differ from person to person and can be affected by how much you want to borrow, the type of car you want, the age of the car, your credit score, deposit contribution and more.
1. Check Your Credit Score
When you apply for car finance, lenders will usually require you to pass a credit check before you are accepted for finance. A credit check allows lenders to see how you’ve handled credit and meeting repayments in the past. Having a good track record of making repayments on time and in full can make lenders more likely to accept you for finance. Usually, people with good credit scores get access to better interest rates as they are less of a risk to lenders. If you’re applying for car finance, you should check your credit score and see where you fall on the credit scale. If your credit score is low, you can improve your credit score in the run up to a finance application. This could give you better rates and also improve your chances of getting accepted.
2. Consider Getting Finance With Someone Else
If your credit is a little on the low side, you can try get a better rate by taking out finance with someone else. A joint car finance application is when two people, usually a couple or family members, take out finance on the same vehicle. It can increase your chances of getting approved and also give you a better interest rate as the lender has more confidence that the loan will be paid back on time and in full. It should be noted that if you do not meet the repayment schedule, both applications can have their credit files negatively impacted.
2. Consider Getting Finance With Someone Else
Interest rates can vary from lender to lender and also at different times of the year. If you’re ready to get a car on finance, it’s worth comparing different interest rates and shopping around for the lowest deal online. You could use comparison websites or a car loan broker to do this for you. This way you only need to apply once and not harm your credit score, whilst also comparing a wide range of different lenders. It can be really straightforward to sort your finance at a dealership, but you can be limited to the lenders they have on their panel. Instead, you could consider sorting your finance online and then get the car you want from a dealer local to you that is verified by the FCA.
4. Put Down a Larger Deposit
Whilst there are many cars on finance no deposit options available, having a deposit to put down for finance can be beneficial to you in a number of ways. Putting a deposit down means you don’t have to borrow as much from the lender and the overall risk to the lender is lower. This can help increase your chances of getting approved, lower your monthly payments and could even reduce your interest rate.
5. Choose a Shorter-term Length
Car finance agreements are usually paid back over 1-7 years. Whilst choosing a longer loan term can lower your monthly payments, it can increase how much you pay overall. Opting for a shorter term can help to reduce your interest rate. It can also help you to get approved for finance as the lender gets their loan paid pack quicker. You should always choose the shortest loan term possible but with the most realistic and affordable monthly payments for you.
