A new car is one of the most significant purchases that you’ll ever make, and most of us choose to use car finance to buy a car. Monthly repayments can make your dream car much more accessible, but you have to be careful not to get trapped into a deal that you can’t afford. Here’s how to make sure you get a good deal on your car finance.
Check credit reports and your credit score
Before you start, check your credit report with the different agencies such as Equifax and Experian. You will usually be able to get this for free by signing up for a free trial – just don’t forget to cancel. Look for any mistakes and give yourself plenty of time to fix them. You also need to check your credit score – you can do this for free with Noddle. Your interest rates are always based on your credit score, so having knowledge of this can help you prepare.
If you’re going to shop around to get a good deal on your vehicle, it makes sense to do this with your loan too. If you go to the dealer without doing your research, you’re an easy target for them to make more money. It’s more convenient to get your finance through the dealership, but it isn’t always the cheapest way. Check out banks, as they often offer incentives like payment holidays and preferential rates for existing customers.
Don’t just look at the monthly payment
It’s easy to assume that if you can afford the monthly repayment, you can afford the car. However, this is quite naive, as buying a car usually comes with three different types of negotiations; the price of the car, the value of any cars that you’re trading in, and the finance. If you just look at the monthly payment, you don’t know what you’re paying for the car, what you’re getting back for the old one or what the interest rate will be. Dealers could use a low monthly payment to disguise the high interest rate, or the low amount that they have given you for your trade-in.
Choose the shortest loan that you can afford
As the price of a new car goes up, so do the loan terms. Longer term contracts will make your monthly payments lower, but could increase the total cost as longer term contracts have higher interest rates. You should limit your loan to 48 months, which will mean higher repayments but less interest.
Know the different terms
Make sure that you know the different terms that car dealerships use:
- APR (Annual Percentage Rate) – A calculation of how expensive a finance agreement will be, taking into account all costs and fees.
- Deposit contribution – When the dealership offers you a contribution towards your deposit, usually for a special offer like a sale.
- GAP (Guaranteed Asset Protection) insurance – Insurance to make up the difference between the value of your car and any loans taken out against it if it is written off.
- Guaranteed Minimum Future Value (GMFV) – The GMFV is a balloon payment that you make at the end of a PCP agreement if you want to keep the car.
- 0% APR – 0% APR is sometimes offered by dealers on new cars to tempt you. It means that if you borrow £10,000, you will only pay back £10,000, unlike a usual agreement where you pay 10% APR and you have to pay back £11,616.
Investigate the incentives
Always check out what incentives dealerships are offering before you choose which one to go with. Some may offer cash incentives like a deposit contribution or cashback, whereas others may offer extras for the car, like a free paint job or a built-in entertainment system. Sometimes, a dealer won’t promote a campaign but incentives will still be on offer when you negotiate, so it’s always good to ask if there are currently any special offers.
Negotiate the car price
A lot of people think that a car’s price is static, and so it’s often overlooked when it comes to negotiating a car finance deal. However, it’s one of the easiest ways to save money. Always try to get a discount – there’s always a sizeable margin for the dealers on the sales of new cars, so there will be room to bring the price down a bit. Of course, the lower the price, the less you need to borrow!
Consider personal leasing
Car leasing is an affordable way to get you out on the road. You essentially rent a car – it will be owned by the finance company – but you pay an initial payment followed by monthly repayments. The initial payment is usually 3,6, 9 or 12 months rental, and the monthly repayment cost is usually based on the mileage and the length of the contract. Personal leasing is ideal if you would like to get a new car every two to three years. You can even get maintenance included, so that you’ll never need to pay for servicing or a minor repair.