Many drivers are now using some form of credit or finance to help pay for their next car. Buying a car outright can be expensive but so can car finance payments if you’re not careful. If you’re looking to get a car on finance with cheap monthly payments, follow the tips below to lower your monthly payments!
Improve Your Credit Score
Creditworthiness is really important when it comes to financing a car. Having a low credit score doesn’t make it impossible to borrow money for a car but it can make it harder to get approved and make your finance more expensive. Car finance lenders tend to favour applicants who have good credit scores and reward them with the best and cheapest car finance rates. This is because they are usually less of a risk to lend to. If you’re worried about a low credit score holding you back, you could consider improving your credit score before applying.
Choose PCP
Personal Contract Purchase is a type of car finance agreement which is recognised for offering low monthly payments. PCP deals can have lower monthly payments than some other finance deals because of the way its structured. PCP deals defer much of the value of the loan until a final balloon payment which needs to be paid if you wish to keep the car. This balloon payment helps to keep the payments down during the agreement. If you’re solely focused on low monthly payments, it could be worth exploring PCP deals.
Put Down A Bigger Deposit
Some car finance agreements may require you to have a deposit contribution to put down at the start of the agreement so it’s worth taking note of. Putting more money in means you are reducing the overall loan amount. A smaller loan can mean smaller monthly payments or you may be able to pay your finance off quicker.
Keep Track of Interest Rates
Most car finance deals will come with some interest to pay. Brand new cars may offer car finance with 0% interest but the monthly payments can be higher so it may not be worth it. The car finance interest rate you could be offered is calculated by a number of factors. One of those factors is the UK’s base rate of interest, set by the Bank of England. Interest rates will fluctuate over time and there will be times when the Bank of England sets their interest rates lower to be in line inflation. It can be a good idea to keep an eye on interest rates and apply for car finance at a time when they are low.
Choose A Longer Loan Term
When you get car finance, you can change your loan term to suit your monthly budget. You may notice when you increase the loan term, the monthly payment decreases because you are taking longer to pay the loan off. This may be attractive if you’re only focused on low monthly payments. However, it’s worth keeping in mind that your interest rate may increase if you’re taking longer to pay off the loan which makes the deal more expensive overall.
Get A Cheaper Car
Car finance deals like HP set their monthly prices based on their total loan value. The total loan value is the cost of the car, the interest, and any other fees to pay. Choosing a more expensive car on Hire Purchase will make your monthly payments higher. To help bring your loan value down, you could consider choosing a cheaper, second-hand car instead.
Refinance Your Current Loan
If you currently have a car on finance and want to lower you monthly payments, you could consider refinancing a car loan. Refinancing a car loan is when you replace your current car finance deal with a new loan to pay off the remaining balance. If your situation has changed since you first took out your finance, you may be in a position to get a better deal and refinance your loan to one with lower monthly payments.