5 money saving car finance tips all drivers should know

So many of us could not imagine living without a car to get around but cars can be a big financial investment to make. More drivers are turning to finance as a way to buy their next car due to high purchase prices of both new and used cars. Car finance can help you to get a car but pay for it over a term rather than in one lump sum payment. This can be really beneficial for people who don’t have enough money saved up to buy with cash but not knowing the ins and outs of car finance can be costly. Consider the below money saving tips before you even start making applications with car finance lenders. 

Improve your credit score

Before you could be considered for finance, the lender will want to know how likely you are to actually make your monthly finance payments on time and in full. In order to do this, they usually perform a credit check on you. A credit check shows the lender your credit score and how you’ve handled your credit in the past. A low score is usually because you have missed payment, made late payments, have little or no credit history or already have high amounts of debt It can be harder to get approved for finance when you have a bad credit score

Before the lender runs a credit check on you, you should perform a free credit check on yourself to see what they see. If your credit is low, you should try improving your score before getting car finance. A better score can make it easier for you to get approved, give you access to more lenders and also get you a lower interest rate. 

Choose low interest

When shopping around for car finance, it can be a very exciting time and easy to jump at the first car finance deal you are offered. However, you could save yourself money by finding the lowest APR interest rate you can. Your interest rate is included in your monthly payments and is a way for the lender to make money on your finance deal. A higher interest rate can make finance more expensive than it needs to be.  For example, taking out a £10k car loan with an interest rate of 10% could see you pay around £2,621 on top of the loan. However, the same loan value with an interest rate of 20% can see you pay back a massive £5,357 in interest! 

Save for a deposit

When you get a car on HP, you may be required to put down a deposit as much as 10% of the value of the car you want to buy. Hire Purchase splits the cost of your chosen car and interest into equal monthly payments over your agreed term. By putting more money down at the start of your agreement, you are reducing the whole loan amount, and it can help to make your deal more affordable.  

Choose a cheaper car

As mentioned above, your loan amount can determine the cost of your car finance. Choosing a smaller loan can make your monthly payments lower and mean you could afford to shorten the loan term. You can get a smaller loan by choosing a cheaper car to finance. Second-hand cars can be a good choice to finance as they depreciate slower, and you won’t be as much value loss as you would if you were buying a brand-new car. Used cars can also equal lower monthly payments and there is an endless amount of choice. 

Check your eligibility

Before you commit to taking out a car loan, you must remember finance won’t be offered to everyone who applies.  Car finance is subject to availability and your personal circumstances such as credit score, affordability, age, job status and living situation can all be contributing factors to getting approved for finance. You can check your eligibility with many finance providers before making an application for finance. This can help you to get an idea of the type of loan you may be offered first, and you can easily compare deals to find the lowest rates. 

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Author: Sanjib SahaSanjib is a finance based writer who has a deep knowledge in stock market, cryptocurrency and mutual funds. He is also a co-founder of Financesrule.com

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