Getting a car loan is a really exciting time and it’s one of the best ways to spread the cost of owning a car. You can choose a term that suits you and monthly payments that fit in with your budget. Not everyone will have the same monthly payments and there are a few factors that can affect how much your car finance will cost. If you want to keep payments as low as possible, there are a few factors you can consider to help reduce your monthly payments. The guide below explores the top 5 ways to make your car loan payments cheaper.
1. Have a good credit score
Your credit score is really important when it comes to your car finance payments. You will usually need to have a credit check performed on your file before you can get approved for car finance and the state of your credit score can affect your interest rate offered. A bad credit score usually indicates that you’ve missed payments in the past and are more likely to default on future loans or finance. A better credit score can help you get easier acceptances and makes your car finance more affordable as it can lower your interest rate offered.
2. Choose low rates
Unless you choose a car loan with 0% interest, your interest rate will be factored into your monthly repayments. Choosing a higher interest rate can affect your monthly payments and make them more expensive than it needs to be. Factors such as credit score, loan term, loan amount and inflation can all affect how your interest rate is calculated. Paying more in interest makes your car finance more costly and searching for the lowest rate possible can be beneficial.
3. Save for a deposit
Whilst there are many no deposit car deals available, it can be beneficial for you to save up some money to put down at the start of your loan. Car finance agreements such as hire purchase benefit from higher deposit contributions because it reduces the loan amount. A smaller loan makes the deal cheaper and reduces how much you need to borrow from the lender. This can make it easier to pay off your loan in a shorter space of time or benefit from lower monthly payments, depending on which you care more about.
4. Refinance your loan
If you already have a car loan in place and you’re looking to lower your costs, you could consider refinance. Refinancing a car loan is when you replace your current deal with a brand-new loan. Usually your new loan will offer better terms, or you can choose to shorten or length the loan term to fit in with your needs. If you want to pay your loan off faster, you can shorten the loan term to do so. Refinancing can be the most beneficial when you are over halfway through your current agreement as you won’t have paid much off yet.
5. Lengthen the loan term
One of the reasons why car loans are so flexible is the ability you have to choose your loan term to fit in with your budget. Car finance deals can usually be spread over 3-5 years and choosing a longer loan term can help to reduce your monthly payments. This is because you are spreading the loan over a longer period. This can be beneficial if you only have a small budget when buying your next car, but it can be worth looking into as this can sometimes increase the interest rate as you are taking longer to get the money back to the lender.