How to ensure you’re not overpaying for car finance

Young salesman explaining all the car features to the young owners

There’s no doubt that buying cars on finance is pretty popular with us Brits. But with so many options out there, it can be tricky to know if you’ve actually bagged yourself a good deal. To help you out, we’ve listed our top ways to save money when looking for credit. From shopping around to switching to cheaper offers, here’s how to ensure you don’t overpay for your car.

Shop around for the best deals

No matter if you’re searching for a car loan or you’re looking into car leasing, you’ll need to shop around to find the best deals. Running a loan comparison is a good place to start. From here, you’ll get a better idea of what interest rates you’re eligible for. Just don’t forget to factor in the running costs of having a car, such as insurance and petrol, when working out your monthly repayment budget.

Compare, compare, compare

It’s important to consider all your options before you choose how you finance your car. Different payment agreements such as Hire Purchase (HP), Personal Contract Purchase (PCP) and unsecured personal loans will all have different terms and conditions that you may or may not find appealing. Do your research and compare the pros and cons of each before you decide.

Improve your chances of getting the lowest rates

Did you know that not everyone will get offered the same interest rate for the same car finance product? In fact, usually the rate you’re offered comes down to your credit history. To improve your chances of getting the best rates possible, you’ll need to work on boosting your credit score. Not sure where to start? Here are few things you can do:

  • Register on the electoral roll
  • Use a credit card little and often
  • Avoid missing repayments on any borrowing
  • Avoid making lots of applications for credit in a short space of time

Want to know more? Read our guide on how to improve your credit score.

Don’t dismiss your loan term

Your loan term is how long you have to pay back your loan. Usually, the longer the loan term, the lower the monthly repayments. However, the more time you take to pay back your loan, the more you end up paying back overall because of the added interest.

There are also early repayment fees to consider. While it may be tempting to opt for a long loan term then simply pay off your loan early, some loans come with additional fees for early repayment. That’s why it’s important you don’t simply dismiss your loan term, because if you do, you could end up paying more down the line.

Think ahead

Different car finance products have different outcomes long term. For instance, if you’re simply renting your car from a lender, you’ll have to return the car once the agreement comes to an end. Alternatively, if you use a loan to buy the car outright, you’ll own your car once your loan is paid off in full. Make sure you’re fully aware of your car ownership rights when deciding which car finance option is best for you.

Remember to switch (if you can)

Been paying off your car loan in full every month for the past year? If the answer is yes, you could find you’re eligible for a lower APR and that you might be able to save money by switching to a cheaper offer. Just remember to factor in all your current loan’s terms and conditions when working out your potential savings.

Baffled by the world of borrowing? Our series of guides are here to help. If you need any further guidance on loan types, credit scores or managing your finances, take a look.

Baffle-free guides to borrowing