The world of car finance can be confusing. This often leads people to make simple mistakes which can cost them lots of money. Don’t worry – we’re here to give you a few smart tips to making financing your next car a doddle.
Understand your credit score
This is the first thing you need to do before you get car finance. Unlike other loan deals (e.g. mortgages, credit cards) you’re more likely (but not guaranteed!) to get a car loan regardless of your credit score. This is because the lender knows they can always redeem their investment by taking the car. However, this means that you may be willing to accept the first offer a car lender gives you. Normally, car finance will advertise their best interest rate but when you read the finer details, this only applies to customers with good credit scores.
A better indication of interest rate is the representative APR. This is the rate that the majority of borrowers will get (at least 51% of customers).
Conducting a credit score check can give you a better idea of what rate to expect. Many car finance websites have free calculators. These allow you to work out your expected interest rate using your credit score.
Keep the term as short as you can afford
Put simply: the shorter, the better. When you look into finance options you may be tempted to take a long-term contract with fantastically small monthly repayments. However, in almost all cases this isn’t a good option. Essentially, the longer the term is on your contract, the more interest you’ll pay overall. So, whilst it might be cheaper in an immediate sense, you’ll end up paying more. We recommend keeping the term as short as you can afford, but without impacting on your quality of life.
Pay for extras upfront
Most car finance deals come with additional costs. These can include registration fees, documentation fees, as well as any other additional extras you want like extended warranties. These are all normal parts of a loan agreement and are nothing to worry about. However, try to pay them in cash. Adding extras onto your loan increases your monthly repayments and you’ll likely have to pay interest on it.
If you’re looking to finance your car the right way, you should start by conducting a soft search with My Car Credit. Our approach is a great way of finding out about your credit score and the car finance options available to you without affecting your credit profile. We’re ready to help you on your journey to a great car with a great finance plan.