Whether you’re applying for car finance or you’re struggling to repay your car loan payments. Many people have been affected by COVID-19 and have seen a reduced income. If you are struggling to make your repayments, you should never stop your direct debit or cancel your repayments and instead seek advice on what to do if you are struggling to meet your car finance payments. There are a few ways in which you could consider cutting some of the costs associated with car finance. You may want to consider paying off your car finance agreement early or if you are applying for a new finance deal, you should consider the different types of car finance available to you.
Which car finance deal suits you best?
If you’ve never taken out a car loan before or you’ve only had a certain type of car finance agreement, then you should do some research into the different type of car finance loans which are available to you.
A personal loan can be used for anything as you apply for a certain amount which then gets deposited into your bank account when you are approved. You are then free get the car you want with your loan and then make monthly repayments to your agreed term with added interest. Personal Loans are usually offered by banks and building societies but can be harder to obtain if you have a low credit score. You could consider how to improve your credit score before applying for a personal loan.
A Hire Purchase agreement is when the loan is secure against the car, this means that if you fail to meet your repayment schedule then the lending company could take the car off you. Hire Purchase usually has higher monthly repayments than some other options because the total amount of the loan and interest is spread across your chosen term. Once you have made the final repayment you will have paid off the loan in full and you will become the legal owner of the car. This means you can then sell the car or keep it without making any more repayments.
Personal Contract Purchase
A PCP deal is very similar to a hire purchase deal but usually has lower monthly repayments. The loan is secured against the car, but the lower monthly payments don’t normally cover the full duration of the loan. you have three options at the end of the agreement you can either hand the car back to the dealer and make no more repayments, or you can use the value of the car as a part exchange on a new PCP deal or you can pay the final balloon payment and take ownership of the car.
How can you save money at the start of your car loan?
Put down a deposit
Having a bigger deposit at the start of your car finance deal can help you save money. When you put more money in, you don’t have to borrow as much from your car loan lender. This means that your monthly repayments will reduce, and it can also reduce the amount of interest you have to pay, saving you money in the long run!
Lower your interest rate
In most car finance agreements, your interest rate is determined by the length of the term and also your credit score. You may think a longer loan term can be beneficial as it can reduce your monthly costs but it can increase the interest rate you are offered. Choose a realistic term and also think about when you may want to change the car. If you regularly like to get a new car then choosing a term which lasts 5 years wouldn’t be the best option for you. Your credit score also affects your interest rate offered. You could consider increasing your credit score so lenders have more confidence that you will pay your loan back on time and in full. If you are applying for bad credit car finance, there are many companies who specialise in helping people with a low credit score gain car finance.
How to save money during a car loan agreement?
If you are halfway through your current finance deal, then you could consider refinancing your current deal. This can also be beneficial I you have had bad credit in the past. When you have strong evidence of making all your repayments on time and in full on your car loan repayments then your lender may let you refinance to lower monthly repayments.
Paying off your car loan early
If you’re looking to pay off your car loan early to save money, then there are a few things you should be aware of. You should first ask your lender for a settlement figure to see how much you have left to pay. In most PCP and Hire Purchase car finance deals, you can pay off your car finance early if you are halfway through your finance term. Voluntary termination may also be recorded on your credit file, but it is unlikely to make a difference to your credit score itself.