Are you ready for your first car or need an upgrade and unsure of how to get the best finance deal? If you’ve never taken out finance before, it can be confusing, and you don’t want to get ripped off! In general, a better credit score, a bigger deposit and a shorter loan term can all help to get you the best finance deal possible. Let’s explore each in more detail.
1. Save up for a deposit
A deposit can be really beneficial for a car finance deal. Some car finance deals require a deposit so it could be worth saving up for a few months before you apply for finance. Putting more money down for a deposit means that you don’t have to borrow as much from the lender and can also lower your monthly payments too! If you’re struggling to get approved due to bad credit, it can also help get you accepted as it shows good financial responsibility to potential lenders.
2. Raise your credit score before applying
It is trye that people with better credit scores will be offered a better car finance rate. A better rate means you will pay less overall. Your finance rate or APR is calculated based on your credit score and the likelihood of you paying back your loan on time and in full. If you are applying for bad credit car finance you may have bad problems in the past with meeting repayment deadlines. This makes you more of a risk to potential lenders. Before a car finance application, you could consider raising your credit score to get a cheaper deal. There are a few ways in which you can boost your credit score
:
- Pay all your bills on time and in full
- Check your credit file for any mistakes and make sure all your information is up to date
- If you no longer have any active credit with someone who has bad credit, its best to dissociate yourself on your credit file
- Check for any fraudulent activity on your credit file
- Clear your existing debt before applying for more credit
- Register on the electoral roll
- Build a credit history if you don’t already have one
- Keep your credit utilisation low by only using under 50% of your available credit
- Limit the number of finance or credit applications you make in a short space of time.
3. Choose a shorter term
When shopping around for car finance, many people only tend to focus on the price of the monthly payment which can reduce with a longer finance term. However, you will tend to pay more interest over the term. Generally speaking, the shorter the car loan the lower interest rate you will be offered. This is because opting for a shorter term usually means that you are at lower risk of defaulting your loan.
4. Sort your finance first
Many people still have the misconception that the best way to get finance is through a dealership. However, dealerships only have a limited number of lenders to offer finance. Using a car finance broker and sorting your finance first before you get your car can be more beneficial. A car finance broker can help you get the best deal possible, even if you have been refused car finance in the past. They put your application in front of a specialist panel of lenders and find the most suitable finance deal for you. You can then take your finance deal to any UK dealership approved by the Financial Conduct Authority.
5. Refinance when you can
Many people with bad credit also use a car finance deal to help increase their credit score. By opting for a higher rate at the start of your finance deal and then meeting your repayment deadline each month and in full, you can help to increase your credit score. Then when you’re halfway through your credit agreement, you can choose to refinance. Refinancing a car loan can reduce your monthly payments, lower your interest rate, and allow you to remove or add someone to/from your policy and increase or decrease the loan term length.
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