Excited for you next car purchase, but now you need to fund it? 😃 It can be challenging to find the right car finance deal for your needs, considering there are so many lenders, banks, and car finance companies making similar offers. So, how do you compare them to find the best one? You can easily do this by looking at the annual percentage rates that they offer and finding out which ones have the lowest figure. Read on to learn more about car finance percentage rates and what is a good finance rate for a car.
What’s a Good Car Finance Interest Rate?
The average good car finance interest rate actually depends on the borrower’s credit score. You might want to check your credit score first as part of your preparation for finding a deal with a good car finance rate. By knowing what your credit score is, you’ll be able to have an idea of the interest rate that might be offered to you by the car finance company.
Car finance rates are typically provided as APRs or annual percentage rates, and they include the interest rate as well as other fees and charges. The APR that the lender will offer you relies on a number of factors, like your income, current loans, and your credit score. The higher your score, the better the APR will most likely be because the lender sees you as a low-risk borrower and that you’ll be making your repayments on time.
Once you know your credit score, you can check this list of credit scores and their corresponding average car finance interest rates to get an idea of what APR will be offered to you if you were to finance a new car.
- 300 to 500 - 14.76%
- 501 to 600 - 10.87%
- 601 to 660 - 6.70%
- 661 to 780 - 3.56%
- 781 to 850 - 2.40%
As you can see, if you have a score of 780 or higher, then you’ll get a better chance of being offered a good car finance rate as low as less than 3%. However, if your score is below 500, then the average interest rate would be 10% or higher.
Good Car Finance Rate with Low Credit Score
If you have a low credit score, can you still get a good car finance interest rate? It’s certainly not impossible to get a better APR offer even if you have a low credit score. However, it might be a challenging process because you’d have to do a lot of shopping around and there’s a risk of getting turned down on your car finance application. The surer way to get a better deal is to improve your credit score first.
If you’d rather not wait to have a better score, you may want to consider choosing a cheaper and older secondhand car. By doing so, you won’t need to borrow as much money as you would if you were to finance a brand new car. The lender might be more willing to offer you a better car finance interest rate because there’s less risk on their part. And while you’re paying off your loan, continue working on improving your score. Make sure you make your repayments on time every time.
How to Reduce Car Finance Interest Rate
As mentioned earlier, the best way to get a better APR on car finance is to improve your credit score. You can do this by taking several simple steps like registering on the electoral roll so that your current address will be officially recorded, paying your bills on time, and checking your credit report for any errors or fraudulent activities using your accounts. Apart from these, you might also want to consider the following steps.
Choose a Shorter Repayment Term
When you borrow money for a car purchase, you may want to choose a shorter repayment term. This way, you’ll finish making payments fast and you’ll pay less interest overall. Yes, the monthly repayment amount will be higher compared to a longer repayment term but if you’ll look at the big picture, you will be able to save more money this way.
Select a Cheaper Car
A cheaper car means you need less money for the purchase, and this typically leads to a lower APR applied on your loan. If you’ve been eyeing the latest car model with all the pricey add-ons, you may want to rethink your decision if you really want to get a better car finance interest rate. Try shopping for a reliable secondhand car that will work just as well but is ultimately a lot cheaper. You may want to look at ex-demonstrator cars because those haven’t been used a lot and are essentially nearly new.
Put Down a Big Deposit
When you put down a substantial amount as your deposit for a car, the lender will see you as less of a risk because you’ll be borrowing less money for the purchase. Another good thing about a big deposit is that your monthly repayments will be much smaller as well. Combine a huge deposit with a short repayment term and you’ll be more likely to get a better car finance interest rate.
Shop Around and Negotiate
There’s no harm in negotiating for a good APR so it’s worth a try. With so many car finance companies in the UK, you’ll be able to find one that suits you well. So, do shop around and take your time researching the best car finance deals. Carefully assess each offer and be sure to read the fine print, especially when you see 0% APR car finance offers. Once you have a shortlist of lenders, ask for car finance quotes so you can compare them side by side.
The average APR for car finance depends a lot on your credit score and financial situation. Getting a better deal usually means improving your credit score first and making sure you can afford the monthly repayments. So, if you don’t mind waiting a bit before you finance a car, it’s worth working on boosting your score so you’ll get good car finance rate offers. 👍