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How to reduce car loan costs

Getting a car on finance can be really exciting! Car finance enables you to spread the cost of your chosen car into affordable monthly payments. This is usually a newer car that you probably couldn’t afford with cash alone. If you already have a car on finance, you may be wondering what is the best way to bring those monthly payments down.

Improve your credit

Whether you are already in a car finance agreement or are looking to get approved, increasing your credit score can always be a good thing. If you’re applying for poor credit car finance, you may be offered a higher interest rate and your interest rate determines how much you will pay overall. This is because you are seen as more of a risk to the lender. If you’ve had trouble in the past meeting your repayments, then they may not have much confidence that you will pay their loan back too. There are many simple ways in which you can improve your credit. You should make sure you always make your payments on time and in full, check the information on your credit file is up to date and try not to use too much of your credit limit.

Put down a deposit

It may seem counter intuitive to put more money down for a car loan when you want to spread the cost. However, having a down payment can help to lower your monthly payments. A deposit means that you reduce the amount that you borrow from the lender and can help you get approved. Some lenders may also insist that you have a deposit to put down so it’s worth thinking about before you start applying for loans.

Refinance your current loan

If you already have a car on finance and want to reduce your monthly payments, you could consider refinancing a car loan. Refinancing is when you replace your current car loan with a new one with better terms. The new loan is usually with a new lender and can reduce your monthly payments. It is recommended that you only refinance once you are halfway through your current finance agreement. If you’ve used this time to improve your credit score, your new finance agreement can mean lower monthly payments, a shorter loan term and lower interest rates.

Compare car loans

With anything you want to purchase in life, its best to shop around for the deal that’s right for you with the lowest monthly payments. You can get a car loan from a bank or building society, car finance broker or car dealership. If you want to shop around for the best deal for you, you should stick to soft search credit checks only. Multiple hard searches for loans or finance and being declined for finance can harm your credit score.

Loan term

The length of your car finance agreement can affect how much you pay monthly. Typically, car loans are paid off over 1-5 years. Choosing a 5-year car loan agreement can lower your monthly payment but you need to think realistically. Will you still want to own the same car for 5 years? A longer finance term also increases the amount of interest you will pay which can mean you end up paying more overall. If you can, you should choose a finance term and monthly payments which are affordable but don’t break the bank each month. You will still need money for the general running of a car such as car insurance, fuel prices, MOT, servicing and road tax.