If you’ve never had a car on finance before or you’ve been burned by a bad car finance deal in the past, you may be wondering how to get the best car finance payments possible. The amount you pay for car finance can depend on a few factors and your own personal circumstances. There are ways in which you can help to get the cheapest car finance deal possible, but it can take time and a bit of financial effort. The guide below has been designed to explores the ways in which you can lower your car finance payments and find out the factors which affect car finance costs. 


How does car finance work?

Car finance allows you to borrow a set amount from a lender or secured against a vehicle and pay it back over an agreed period. Car finance agreements are usually spread across 1-5 years and repayments are made monthly with added interest till the end of the term. In the UK, there are 3 main car finance agreements which tend to be the most popular. They are a hire purchase deal, PCP car finance agreement and a personal loan. Each has a different structure, but the underlying repayment plan is the same. 


Factors that affect the cost of car finance:

There are a number of things that can affect your proposed car finance deal. Lenders will take a look at a few personal details, such as credit score, the car you want to finance and the length of the loan term before determining how much your car finance agreement will cost. 

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1. Credit score

If you have bad credit, unfortunately no credit check car finance isn’t possible, and you should be wary of companies offering guaranteed car finance. It can be hard to get away from a credit check, but lenders use them to see what type of borrower you’ve been in the past. A history of making payments on time and in full, good financial management and a better credit score can get you the best finance rates because you are less of a risk to lend to. It is possible to get a car with bad credit, but you may face higher interest charges to help secure the deal with the lender. You could consider improving your credit score before you start applying for car finance. 


2. Loan amount

The price of your vehicle or your chosen loan amount can affect how much you pay back overall. A higher loan amount or a more expensive car will increase your monthly payments. Larger loans can also increase your interest rate offered and make borrowing more expensive overall. If you want to keep costs low, you could consider a cheaper car or a second-hand vehicle. 


3. Deposit contribution

There are many no deposit options for car finance deals but having a down payment can be beneficial. If you have a car in mind that you want but it’s a little bit expensive on monthly payments, you could consider putting more down for a deposit to help reduce the loan amount. A deposit can also shows good financial management to potential lenders and could increase your chances of approval. 

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4. Interest rate

It can be possible to get a car on finance with 0% interest to pay however, these rates can be reserved for those with excellent credit score and are usually offered on brand new cars. So, most car finance deals do require you to pay interest. Having a lower interest rate means the cost of borrowing is lower and you don’t have to pay back as much overall. It’s worth shopping around for the lowest interest rate for your circumstances to help get a cheaper car finance deal. If you’ve already got a car on finance, you can refinance car finance deals to help reduce your monthly costs. 


5. Length of loan term

The length of your loan term is really important. It can be attractive to pay your car finance back over the longest possible period, for most agreements, this will be 5 years, however, it may not be the most cost-effective. Choosing a longer loan term can benefit from lower monthly payments but it means you pay back interest for longer and can make the overall cost higher. Where possible, you should try to pay back your loan over a term that is affordable but realistic.