Car finance can help drivers spread the cost of buying a car into affordable monthly payments. Finance deals can be paid off over a number of years. But typically between 3-5 is the most popular loan term. Buying a car can be costly. Plus using finance to buy a car usually means you will pay some form of interest on the deal. Choosing the wrong deal or a high interest rate can make finance more expensive than it needs to be. If you’re looking to get a car on finance, there are a few factors you can consider to help reduce the cost of your finance deal.

It’s worth noting here that finance can never be guaranteed to any applicant. Finance lenders have strict eligibility criteria. This will need to be met before they could offer someone finance. You can also be refused car finance if the lender does not think you are suitable for finance or can’t afford it.

1. Improve your credit situation

Your credit score and previous history of borrowing is very important to car finance lenders. Based on your past behaviours when handling credit or finance, lenders can make predictions about which type of borrower you will be in the future. Making payments on time, having low levels of debt, and only using credit little and often are great financial habits to get into. All of which can result in a positive credit score. It can be harder to get finance with a bad credit score as you are more of a risk to the lender. If your credit is lacking, you should work to improve your credit in the months leading up to your finance agreement.

2. Put down a deposit at the start of the agreement

A finance deposit may be required at the start of the deal to help secure the agreement. Whilst cheap cars on finance with no deposit can be attractive, it can be beneficial to have some sort of deposit to put down at the start of the deal. When you pay a deposit to the dealer, you are reducing the loan amount. Furthermore, you can even reduce your monthly payments. A smaller loan amount can be easier to manage and makes the finance agreement cheaper. As a general rule, you should aim to put down around 10% of the vehicle price as a deposit.

3. Buy a second-hand car

Your car finance costs will be calculated by a number of factors. One of the biggest is how much you want to borrow from a lender. The amount you borrow depends on the price of the car you choose. Finance a brand-new car through hire purchase can be costly as the total loan amount is split into equal monthly payments. To help keep costs low you could consider choosing a cheaper car such as a second-hand one.

4. Compare low interest finance deals

Unless you choose a 0% finance deal, which is usually only offered on brand new cars which have a higher price anyway, you’ll have to pay some sort of interest on top of your loan. Your interest rate will be included in your monthly payments. Therefore choosing a higher interest rate can make finance more expensive than it needs to be. The interest rate you are offered will be subject to your personal circumstances. But it can help to compare car finance the lowest interest rates you are offered rather than focus solely on the monthly payments.

5. Refinance your current loan

Finally if you currently have a car on finance and want to get a cheaper deal, you could consider refinancing your loan. Refinancing is when you replace your current finance agreement with a new one. Usually with lower payments or a better rate. Many bad credit applicants may be offered finance with a higher interest rate as they are a higher risk to lend to. Although people with bad credit can take this agreement and use their deal to improve their score. Simply by making all payments on time and in full. Once their score has improved, they can refinance the deal. This can happen when they over halfway through the agreement to a better interest rate.