In Car Finance a slight difference in the interest rates can significantly impact the overall cost of the car. This increases the importance of a comprehensive search for the best deal to save some serious money. However, people still believe there is nothing much they can do to get the lender to reduce the interest rates.
On the contrary, you can get some best offers if you have the right strategy in mind. The brokers don’t always act in your favour as they have a big commission from the deal. It is on you to make your profile look better and land in the priority list of the lenders.
Here, we have mentioned some tips to get car finance at low-interest rates in the UK and some options for it.
Check the Credit Ratings For Car Finance
Your credit ratings determine the credibility, affordability, and reliability for the loan repayment. Every lender will check it before the approval of the loan. Therefore, you need to make sure there is no default or missed payments in the credit history.
Make payments on time to avoid the negative marks because of missed payments. Also, try not to juggle with too many debts at the same time. You should repay some dents if you already have a pile of them.
Many lenders still approve car finance if the applicant has a bad credit history. They require a regular source of income to make sure the instalments are not overwhelming for them. Check the credit history a month before finance application for mistakes or errors.
Select an Affordable Car
Car is a long-term investment for the majority of the people who cannot afford a new vehicle every other year. The dealership uses this reason to make people buy higher models beyond their initial budget. Thus, you need to make sure the car is within your budget and meets the requirement.
You can buy a less-expensive variant of the same model with only a few insignificant differences. Many people choose a used vehicle to save money. Make sure the car is in good shape with no damage to the key components.
An affordable car increases your chances of approval at minimal interest rates. The instalments will get manageable, and the overall cost will reduce as well. Add the inexpensive maintenance and other charges as well to your savings.
Car Finance: Increase the Down Payment
The down payment is an indicator of your financial stability and responsible spending. It increases the approval chance as the loan is less risky for the lender. Therefore, you should put at least 20% of the car value as a down payment.
There are other benefits as well for the heavy down payment. You will take a smaller amount as a loan that reduces the interest paid during the repayment. The equity over the car will increase that might help during the refinancing.
Many lenders offer bridge loans to make the down payment for a mortgage. These loans don’t require payment straight away. You can start the instalments after a few months or even a year in some cases.
Get a Co-Signor
Co-signor act as a guarantor for the loan in case the borrower misses the payments. The terms are designed for applicants with bad credit or irregular income. You will get lower interest rates and favourable terms if the guarantor has a perfect credit history and regular cash flow.
Only a handful of the lenders offer co-signing option in the car loan as it is already a secured loan. However, it is easier to make the guarantor repay the loan than repossess and sell the vehicle. Also, it might damage the relationship beyond repair if you default on the loan.
The couples can take advantage of the co-signing as they may share the vehicle for everyday use. You can ask the roommate or family members if you follow the same route daily to become a guarantor.
Pay the Other Charges in Cash
Some numerous other expenses and charges are often unknown until you buy a car. You need to pay the processing fees and other charges for car finance. Ask the lender for these charges before signing the application.
The dealership will also charge you various fees for the purchase. The used car sellers take the cost of marketing as well from the buyers. You should pay these charges in cash to avoid the upside loan situation.
Upside loan is the situation when the loan amount is higher than the actual value of the car. You don’t have to pay the interest over these small charges that are easily affordable. Even the insurance should be paid with cash after a little research to save some money.
Select Shorter Terms
Loan tenure decides the affordability and overall cost of the car for the borrower. People choose a longer-term to reduce the stress of instalments. However, the shorter-term reduce the cost with the same interest rates.
You are free from debt early to focus on the other financial goals. There is less uncertainty on the repayment as the chances of financial troubles are less. It is less risky as there is no guarantee over the financial stability for the next 5 to 10 years.
- Get Quotes from Different Sources
Many financial institutions in the market offer car finance with different benefits. Your credit profile will determine the best alternative for you. Apart from private lenders, financial institutions have a strict criterion for eligibility.
Banks are the traditional source of finance that offer lower interest rates compared to the others. The policies and norms are rigid regardless of the requirement and credit profile. People with bad credit may find it extremely hard to get approval from a bank.
- Private Lenders
The private lenders are the alternative to traditional sources as they serve different credit profiles. You will get the approval based on your present financial situation, not the past mistakes. However, the interest rates offered are slightly higher than the banks.
- Credit Union
Credit union serve a specific section of the society at nominal interest rates. Their limited number of services and branch are the drawbacks. There is no customers service as the borrowers need to take a membership.
To sum up, some research and pre-work will surely help you get a better deal on car finance. The internet has made it all easy to find lenders, get quotes, and set a profile. However, your focus should remain on affordability to prevent the marketing tactics of the salesmen from taking control over your decision.