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More people than ever are choosing to finance their next vehicle. Car financing makes it more affordable to own and run your next vehicle. But how can you be certain that you’re receiving the greatest deal?
There are a number of factors that affect how much you pay back for car finance and one of the most important is the interest rate you pay. Let’s take a look at how you can get low-rate car finance and why it’s so important to your deal.
What is an interest rate?
Your interest rate on your car finance deal is essentially the cost of borrowing. Lenders put interest rates on car finance deals so they can make money and also provide more security on the money they lend out.
If you have evidence of not paying your bills back, you may be offered a higher interest rate. Low-interest rates can reduce the amount of money you pay back overall and make financing more affordable. There are a number of factors that could affect your interest rate offered. Let’s check them out in the guide below.
How Can You Get Low Rates on Car Finance?
1. Check Your Credit File
Finance lenders usually ask to perform a credit check on your credit file before you are accepted for any type of loan, mortgage, or credit. If you have had trouble in the past with repayment deadlines, you can be seen as more of a risk to finance lenders. You should get into the habit of checking your credit score regularly and especially just before you apply for finance.
You should make sure all your information is accurate and up to date as having misinformation on your credit file can reduce your credit score. You can also find a list of credit applications you have made. You should make sure all applications are correct as you may have been the victim of a fraudulent application in your name.
2. Compare Car Finance Agreements
The car finance agreement you choose can affect the interest rate offered. It’s best to shop around for the car finance agreement that’s right before you commit to one. You can usually get the best rates on personal loans or PCP car finance deals.
Hire purchase car finance may be more suited to those with bad credit history as they are a type of secured loan. This means if you fail to meet your repayments, the lender owns the car and has the right to take the car away from you.
3. Save Up for a Deposit
Having a deposit to put down for car finance can reduce the interest rate offered. This is because you don’t have to borrow as much from the lender and can give them more security that you will pay your loan back on time and in full. A deposit contribution can suggest that you are good with your money and can also help to reduce your monthly repayments.
4. Pay Current Bills on Time
Showing lenders that you can meet repayment deadlines is one of the most important ways to help reduce your interest rate. Low-interest rates are usually reserved for those with good credit scores.
Paying your bills on time and in full can help show lenders you can meet deadlines and also increase your credit score. Showing you are responsible with credit can have a number of benefits on your financial life.
5. Reduce Your Credit Usage
Before you start applying for finance or loans, you could try to reduce the amount of debt you currently have and keep your credit utilisation to a minimum. Lenders will usually take into account how much credit you currently owe. If you have high levels of existing debt, they may think you can handle more and propose a high-interest rate as added security.