For those of you looking to purchase a car, there can be a variety of avenues you can go down to achieve that. One such way is through car finance and it is the most popular option available. It is easier than buying outright and more permanent than leasing a car. However, the APR on a finance package can put many would-be car owners off.
There are different ways of lowering the annual percentage rate (APR) on your finance package. These options include considering which lender you use, the type of car you wish to buy, how long you wish your term-length to be and what your credit rating is.
The age of the car can have an effect on the APR you will pay. New cars do have the option of zero-interest finance agreements. This is obviously a trade off because a new car is likely to be more expensive to buy.
The older the car, the higher the interest rates are likely to be. If you wish to have a low APR, consider getting a new or a nearly-new used car. The likelihood of being accepted on a zero-interest finance package is low for the majority of people, but obtaining a low APR is possible for everyone.
The length of your finance agreement will affect the amount of interest you will pay. The longer the agreement more interest you will pay. The shorter the agreement the more you will save as long as you can afford to pay the monthly amounts. In some case, with the average agreement now lasting 60 months, you could end up paying more in interest than the car is actually worth when you first finance it.
When thinking about the length of your finance agreement, it is best to consider two issues. The first is if you can afford the monthly amounts. That is the big one because if you can’t then you need to consider a change somewhere else in the process.
The second issue is how much extra you will pay in interest payments due to the term length. You can get the lowest APR possible, but if you have a 60-month plus agreement, you will still pay a fair amount in interest.
If you aren’t getting the money to finance your chosen car through private means such as a family or friend, then you will be using a bank or credit union through your dealership. Your dealership, such as Hippo Motor Finance, will find you the best deal from the lenders they work with.
The primary determinant that affects the APR on your finance package is your credit rating. All finance applications trigger a credit check and if you do not have enough points on your score, you will be rejected. If you are rejected, do not keep applying until you have worked out why you were rejected in the first place. Each credit check can knock points off your score if done too often and too close to each other.
There are a few different ways of improving your credit score and therefore improving your chances of being accepted for a finance package and lowering the interest rates on the package. There are both long term and short term techniques you can use to improve your score.
As mentioned previously, the first thing to do is to stop applying for credit of any kind, including car finance packages until you are certain you have sorted out the issues and improved the score.
If you don’t have any history of borrowing or credit, you can easily start by enrolling on the Electoral Register. You are unlikely to be accepted for a finance agreement if you aren’t on the Electoral Register. This proves your identity and proves where you live.
Close any unused account and cancel any unused credit cards. Lenders take into account how much credit is available to you. The fewer, well-managed long-standing accounts with good histories are better for improving your credit score than having the alternative. This also reduces the risk of fraud. By protecting your identity, you are avoiding any additional accounts being opened or a surge in the amount of credit used in your name.
The most important thing to do in the short term is to pay regularly and on time. Don’t miss any payments because this is how you damage your credit score. Keep trying to get your debt down by making regular payments and that will help your credit score to rise because it proves that you are a sensible borrower on top of their finances.
There are two easy ways of improving your credit in the long term. Use a credit builder prepaid card and a credit builder credit card. When used correctly, these are both excellent ways of boosting your credit rating.
A credit builder prepaid card works as a type of loan by a prepaid card company. You sign a credit agreement for a certain amount and agree to pay a monthly amount to pay off the loan. For example, you could ‘loan’ £120 on a prepaid card and pay back £10 a month. This counts as twelve months of successful repayments, therefore count towards improving your credit rating.
The same principle relates to credit builder credit cards. If you continually pay them off monthly and on time, then you are constantly building up your credit score. There is a further risk with these credit cards, however, as the APR on them are higher than normal credit cards. You may end up paying interest rates of over 30% in interest annually. To avoid this, ensure you pay off the balance monthly.
Once you have got your credit score in a healthy position, you will find that the majority of lenders will offer you low-interest rates across the board. However, do aim for a shorter finance agreement to avoid paying large amounts of interest unnecessarily over the period. If you can afford it, also aim for a new or nearly-new used car as the interest rates will also be lower than on older used cars. Car finance is an affordable and easy way of purchasing a car, made easier with low-interest rates.
Many car finance lenders either offer you finance first and then you have to find a car following that. Or you have to have a car before you go to a lender to get it financed. With Hippo Motor Finance, that is not the case. We offer you a car and finance deal as one hassle-free package. You tell us the type of car you want and the budget you have and our staff do the rest. We find the best deal for you and your needs.
We expect more than 51% of our customers to achieve this rate.
|Loan Amount||Total Cost of Credit||Representative APR||60 Monthly Payments||Deposit Amount||Loan Term||Total Amount Payable|
|£7,500||£3831||19.1% APR||£188.85||£0||60 Months||£11,331|
We are a broker not a lender and our registered office is Trident Park, Trident Way, Blackburn BB1 3NU. Our contact number is 01254 919000