How To Get The Best Car Finance Deal
Having at least 10% deposit, a good credit rating and comparing car finance deals to get the lowest interest rates are sure ways of getting the best car finance deal. You can also lower the monthly costs by choosing a term that either spreads the monthly payments or lowers interest.
Are you in the market for a new car and want to know how to get the best car finance deal? Read on to find out how you can get the cheapest car finance offer.
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5 ways to get the best Personal Contract Purchase (PCP) deal
1. Compare PCP deals to get the best price
In order to get the best PCP deal you should use online comparison websites that pull together deals from multiple UK dealers in order to get you the best deal on a new car.
This way you can compare vehicles side-by-side and decide which one has the featurs you want, at the price you’re happy to commit to.
2. Look for deposit contribution offers
Many manufacturers and dealers offer deposit contributions throughout the year on car finance deals to help you afford your new car. In short, a deposit contribution is a chunk of money the manufacturer or dealer puts towards your purchase to make it cheaper.
Most dealerships will offer deposit contributions towards your new car. This can be as much as £2,000 discount off your new car for some makes and models of vehicle. Be sure to keep an eye out for our car finance deals available with deposit contribution to save on your next car.
3. Understand APR interest rates
APR (Annual Percentage Rates) on car finance deals determine how much added interest you pay on your new vehicle. Typically, the average APR rate is between 6-11% for people who are ‘near-prime’ (i.e. have good credit). However, if you have poor credit then you could pay as much as 20%, or even more, in interest. This will drive the cost of your monthly payments, so it’s always worth checking your eligibility beforehand, which you can do for free using our Car Change Calculator to ensure you choose the right car finance for your situation.
Don’t worry too much if your credit score isn’t perfect. There are ways you can get lower monthly payments on your car finance deal, including:
- Borrowing less – by paying a larger deposit you won’t need to borrow as much money and so your monthly payments will be cheaper.
- Improve your credit score – with a better credit score you’ll pay much less in interest on your car finance deal. You can take quick actions to do this too, such as registering on the electoral roll (if you aren’t already registered), checking for mistakes on your file and making bill payments on time.
- Choose a longer contract – although this won’t necessarily lower the amount of interest you pay, you can spread the payments over a longer period which will make it cheaper to finance your car each month.
- Choose your vehicle carefully – interest rates vary massively from one vehicle to the next, so it’s worth having a shortlist of different models in mind and shopping around to compare interest rates on a variety of cars.
4. Consider used PCP deals
The reason why PCP car deals are so popular is because you can choose used cars for even lower monthly payments. Because cars lose a lot of their value in the first three years of their lifetime, choosing to finance a used car is a good way of getting your hands on a car for much cheaper than when it was new.
As a result you can tend to look at more premium models that you might not be able to afford otherwise.
At Moneyshake we have PCP deals on new and nearly-new cars, the latter of which are worth considering if you want the best price. Our nearly-new vehicles have few miles on the clock, but are in great condition because they are used on the forecourt for test drives and demonstration.
5. Choose the right term
As we mentioned earlier, choosing the right PCP term can guarantee you get the best deal on your new car. For example, a higher deposit and shorter contract is worthwhile exploring if you want to pay the least amount of interest.
On the other hand, if you haven’t got a lot saved up for a deposit and need a car urgently, spreading the finance over a longer term (i.e. 4-5 years) will reduce your monthly payments. But remember that this option will likely mean you pay more interest over the course of your agreement.
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5 ways to get the best Hire Purchase (HP) deal
1. Pay a higher deposit
HP car finance involves paying off the entire value of a car over your contract, so the monthly payments can be some of the highest on the market.
In order to lower the monthly payments, we recommend saving up a chunkier deposit (10% or more of the car’s value, if possible). That way you won’t have to borrow as much money from the manufacturer or dealership which will result in a cheaper payment each month for the car.
2. Consider a used car
Second-hand HP offers are a great option if you want to make your monthly payments as cheap as possible.
If you have a particular model in mind that you’d like to buy but is too expensive brand-new, choosing a used model on a HP deal is a good way to avoid forking out on its initial rapid depreciation.
Remember if you’re going to choose a used car that you make sure you perform all the necessary checks to ensure it’s in good condition. You’ll also want to ask for a copy of its MOT history (a good dealership will keep these records up-to-date).
3. Part-exchange your existing car (if applicable)
If you do own a car that you can part-exchange with the dealership for your new car, we recommend doing this to boost your deposit. Most dealerships will have some use for your old car (as long as it’s been kept in good condition) and it’s a good way to kill two birds with one stone – a straight swap whereby you get money knocked off your new car.
Should you wish, you can even couple the value of your old vehicle with some cash deposit if you’ve managed to save some up. Together this can ensure you get the lowest price on your car monthly payments.
4. Make sure you have good credit
This one is essential to getting the best interest rates on your HP deal.
The dealer providing the finance will give you a favourable rate if you have a good credit score, as part of the application involves looking at your credit history.
There are ways of improving your credit score in order to get the best possible deal on HP car finance. This includes making your direct debit payments on time and using less of your available credit limit on credit cards.
5. Compare HP deals from multiple providers
Once you have the finance side of things sorted before applying for a HP finance agreement, the final piece in the jigsaw puzzle is knowing where to find the best deal.
Thanks to an increase in price comparison websites that show you the best deal from multiple dealers, you can now quickly find the best deal on HP car finance. With no impact on your credit score, you can get a quote in minutes by filling out a few personal and finance details.
As long as you’re honest in your answers, you should get an accurate quote and be able to find the best price available on the market for your preferred car.
5 ways to get the best personal leasing deal
1. Pay a larger initial payment
Car leasing requires you to pay a non-refundable ‘initial payment’ that goes against the total cost of your lease agreement. By putting a larger sum down, you can reduce the cost of your monthly payments significantly.
This is good news if you’re looking at a more expensive car, because it means that you can get it for much cheaper than if you were to buy it using a traditional loan, for example. Unlike these methods of car finance, a lease is hiring a vehicle long-term before you hand it back at the end, so you’ll only pay for its depreciation over your contract length and annual mileage cap.
2. Spread the payments over a longer term
By choosing the longest lease term available (usually this is 48 months), you can get the cheapest monthly payments on your new car. Unlike a shorter agreement, long-term lease deals spread the cost of using the car so that you benefit from more affordable outgoings,
If you choose a four-year lease, there are a couple of things you’ll need to keep in mind:
- Before your lease car reaches its third birthday, you’ll need to take it for an MOT
- You may want to consider a maintenance package with your lease agreement if you’re going to drive a lot of miles – routine servicing for wear and tear items, plus the cost of your MOT are included in a maintenance package
3. Reduce your annual mileage
Because car lease deals are priced up based on how much the car depreciates over your agreement, stating that you’re going to drive less miles each year will make your payments cheaper.
Our lease deals are available with a minimum of 5,000 miles, right up to a maximum of 30,000 miles per year. A quick way to calculate your annual mileage is to multiply the miles you cover in a typical driving week by 52. Be sure to add around 5% extra for any emergency trips you may have to make.
It’s important that you’re honest with your annual mileage. If you choose a lower term in order to get a cheaper monthly rental, you run the risk of getting an end-of-lease charge for excess mileage (usually providers charge around 10p per mile you go over).
4. Compare lease deals from multiple providers
In order to get the best car lease deal, you can compare offers from leasing providers to work out the cheapest option.
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5. Check out leasing special offers
Car leasing special offers let you drive some of the most popular makes and models at a price that’s been discounted by the funder. Moneyshake constantly offers new ‘hot deals’ which are our most competitively priced lease deals.
5 ways to get the best deal on a car loan
1. Borrow as little as possible
With a traditional car loan you’re essentially borrowing the whole amount for a car and making monthly repayments, plus interest. Naturally, if you have money already saved up and can afford to borrow less from the bank or third-party provider, you’ll benefit from lower monthly repayments and interest rate.
If you’re looking for a new car, we recommend having at least 10% or more of the car’s value saved up before applying for a loan.
2. Choose a shorter loan term (if you can)
A car loan works in a similar way to other forms of car finance, whereby most of the interest is factored in when you have a longer term. While your monthly payments may work out cheaper if you choose to repay your loan over, say, 60 months, the overall amount of interest you owe will be greater.
When comparing car loans online, be sure to cross-reference each deal with the others to see which ones offer the lowest rates of interest.
3. Check your eligibility before applying
There are plenty of free services online that allow you to check whether you’re eligible for a car loan before applying. This is what’s known as a ‘soft check’ of your credit history, so your credit score won’t suffer negatively even if you don’t qualify for a particular loan.
4. Compare car loans for the best rates
Just like you can check whether you’re eligible for a car loan online in minutes, once you’re given the green light there are lots of comparison websites that show you multiple car loan offers in one place. Using some personal and finance details a car loan comparison website will present you with the agreement that has the cheapest monthly repayment first.
Even if the top result has monthly repayments that are cheaper than the others, you should still take the time to read through the full loan details. This can help you find out key information about how flexible the loan is, especially around APR, which could be fixed or representative (i.e. subject to change, meaning you pay more).
5. Consider a cheaper car
This one is fairly straightforward – the cheaper your car is, the less you’ll have to borrow to afford it. You won’t be the first person to be interested in a car that’s way more than budget permits. But taking a step back to consider your financial situation will ensure you can afford to repay what you borrow. This will ensure you don’t end up behind on repayments too, which could lead to hefty fines from the finance provider.
Want to find out more about car finance before getting started? Check out our other car finance guides.
Need a simple way to change your car and get the best type of finance on a new model? Enter your details and find out the best way to get into your new car with our Car Change Calculator.