Low deposits and low monthly fees may be an enticing way to pay off your dream car, but buying a car on finance is a big decision and should be well thought out. There are a number of choices available to you and the more money you have to play around with the better your chances of securing a finance plan with low interest rates.
Understand your credit rating
Firstly, it is a good idea to check your credit rating before going forward with a finance plan. If your credit rating is a little low as a result of previous debts, you may be wise to save up enough money to pay for a new or pre-owned car in cash. Any existing red flags on your credit score are likely to drive up the interest you pay – after all, the dealership or bank financing your car has to foot the risk that you'll default. However, if your credit score is good and you'd like to keep a little savings to invest elsewhere, you shouldn't have a problem getting a good interest rate – maybe even zero percent.
Lay out a clear plan for the months ahead
Once you're confident you're ready to go ahead with financing, consider the time period over which you'd like to pay off your car. As you would expect, the shorter the loan the higher your monthly fees – but you'll pay less overall as your interest rates decrease in relation to the length of the loan. Typical short-term financing plans cover a period of 24 to 36 months, while longer loans can extend up to 60 months.
Decide between a new and used car
In the majority of cases, used cars come with higher interest rates compared with new cars. However, the retail price for a used car could cost you as little as half of its new car equivalent. To make a well-informed decision, you'll need to compare the savings you'll make on the purchase price with the difference between the finance plans for a new and pre-owned car.
A recent boom in the UK automotive market means that many manufacturers are offering attractive factory-to-consumer rebates to attract new car buyers. They want to sell a lot of cars, so they'll issue a rebate as a way of contributing to the cost of a new car. These rebates are available with most finance plans and are definitely worth factoring into your calculations.
Charles Hurst has qualified financial advisers available to discuss your financing questions and concerns. Please contact your nearest dealership to speak with one of our experts today.
