A slight difference in the interest rates brings a substantial difference in the total cost of a car. This increases the importance of a comprehensive search for the best deal to save 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 of the best offers if you have the right strategy in mind. The brokers don’t always act in your favour, as they have a hefty commission from the deal. It is on you to make your profile look better and land on 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.
How to Get Car Finance at Low-Interest Rates?
Check the Credit Ratings
Your credit ratings determine the loan repayment’s credibility, affordability, and reliability. Every lender will check it before the loan is approved. Therefore, you should ensure no default or missed payments in the credit history.
Timely payments are vital to elude the negative marks caused by missed payments. Also, try not to juggle with too many debts simultaneously. You should repay some dents if you already have a pile of them.
Some other borrowing options are there in the form of bad credit car finance from a direct lender. It requires a regular income source to ensure the instalments are not overwhelming for them. Check the credit history a month before the finance application for mistakes or errors.
Select an Affordable Car
Cars are a long-term investment for most 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 must ensure the car is within your budget and meets the requirements.
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. Ensure 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 be manageable, and the overall cost will also be reduced. Add inexpensive maintenance and other charges to your savings.
Increase the Down Payment
Down payment highlights your financial stability and responsible spending. It increases the approval chance due to the low risk from the lender’s point of view. Therefore, a minimum of 20% of the car value as a down payment is required.
Many more benefits are also for the heavy down payment. You will take a smaller amount as a loan that reduces the interest paid during the repayment. The equity in the car will increase, which 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. In some cases, you can start the instalments after a few months or even a year.
Get a Co-Signor
The co-signor is a loan guarantor 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 lenders offer a co-signing option for a 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 other expenses and charges are often unknown once 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 also take the cost of marketing from the buyers. You should pay these charges in cash to avoid the upside loan situation.
You don’t have to pay the interest over these small charges that are easily affordable. Even insurance should be paid with cash after some research is done to save 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, short-term installment loans lessen the price with the same interest rates.
You are free from debt early to focus on the other financial goals. There is less uncertainty about the repayment as there are fewer chances of financial trouble. It is less risky as there is no guarantee of 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 strict criteria for eligibility.
Banks
Banks are the traditional source of finance that offer lower interest rates than the others. The policies and norms are rigid regardless of the requirement and credit profile. People with bad credit may find it challenging to seek bank approval.
Private Lenders
Private lenders are the alternative to traditional sources, serving different credit profiles. You will get the approval based on your present financial situation rather than past mistakes. However, the interest rates offered are slightly higher than those provided by banks.
Credit Union
Credit unions serve a specific section of society at nominal interest rates. Their limited number of services and branches are the drawbacks. There is no customer service as the borrowers need to take a membership.
Conclusion
To sum up, some research and pre-work will surely help you get a better deal on car finance. The internet has made it 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 of your decision.
Anna Johnson has more than 11 years of experience in direct lending industry of the UK. She is the Senior Content Editor at 24cashflow where she is leading a large team of loan experts. During her career, she has helped the loan aspirants to use the particular loans in the best way and improve their financial lives and status.
Anna Johnson is known for her in-depth research of the UK loan marketplace, as she has worked with many major lending firms in her career. During her educational phase, she has done a research on ‘Finance Fundamentals for Growing Business’.
