Low Interest Car Finance Companies

When purchasing your next car, you’re obviously going to be looking to go for the most cost-effective option you can find. And when it comes to loans, cost-effective means low interest. If you jump into a car finance agreement without properly looking at the interest rate, you may find yourself paying much more than anticipated. Low interest rates mean less money to pay. That’s why we’re going to go over how to find the best car finance deals in this article. Let’s get going! 🤗

What Low Interest Car Finance Offers Are Available? 

The Different Types of Car Finance

There are three main types of car finance arrangements in the UK. The first one is called Hire Purchase (also known as HP). With this type of agreement, you will be paying a fixed amount every month. By the end of your contract and once you’ve paid everything off, the car will be entirely yours. If you want help to try to calculate the cost of a hire purchase loan you might like to check out our blog on this.

The next kind of arrangement is called the Personal Contract Purchase (also known as PCP). Similarly to an HP agreement, you’ll be paying your lender a fixed monthly amount. The monthly amount will be much lower than with Hire Purchase though. When your contract ends, you’ll be able to choose between paying a balloon payment or returning the car. 

The last type of car finance agreement is called leasing. When you lease a car, you’re basically renting it out long-term. You have to pay your car finance provider each month but as soon as you get to the end of your contract, you’ll have to return the vehicle. If there’s any damage to the car, you have to pay for the repairs. 

What Exactly Are Interest Rates? 

Interest rates are what decide how much you’re going to have to pay for your loan, on top of the amount you’ll need to buy your car. These interest rates are basically how your car finance provider is making a profit, so that’s why they exist - so that your lender can get paid for loaning you money. Most lenders offer fixed rate interest, but you can also get variable rate loans too. 

You’ll usually have between one and seven years to repay your whole loan, which is the sale value of your car + interest rates and other fees. If you paid a deposit at the beginning of your loan, it will be shaved off the total amount of your loan. Most car finance agreements require a deposit, so it is quite a common thing to have to pay. Then, you’ll have to pay back your loan + interest and fees in set payments every month. That is why a lower interest rate means a lower repayment amount.

How to Get Low Interest Car Finance UK 

The first step towards getting a low interest car finance deal in the UK is to carefully examine the APRs in the deals you come across. An APR is an Annual Percentage Rate, and it is the sum of all the fees you’ll have to pay on top of your loan amount: interest rates, and all other additional charges. It’s the law for all lenders to have to tell you what their APR is. 

However, it can be a bit more tricky than just looking at the APR. The APRs you’ll see on car finance advertisements for example are “representative” APRs, which means that they don’t have to be 100% accurate. If you go for that particular finance deal, you might find yourself having to sign for an APR that is higher than you anticipated. Do keep in mind the fact that there might be other expenses within your car loan, like any fees for a damaged vehicle, an exceeded mileage limit, or any missed payments.

All in all, a good thing to do is to compare plenty of different APRs from different lenders and make a list. Go for the very best APR you can find and apply to get pre-approved for a car loan. This will allow you to get what is called a “decision in principle”, which will give you a fixed interest rate and a clear amount of how much the loan will cost you. It doesn’t have an impact on your credit score because the company will just do a soft credit check at this stage. It's better to do this than actually applying for the loan and potentially getting rejected. It’s good practice to ask for a decision in principle before applying for any loans. 

Apart from checking the APR, you can also look into the monthly repayment amount. It is tempting to choose the arrangement with the lowest monthly amount, though you should be careful because these deals are often more expensive. It’s best to go for the shortest term loan you can possibly afford. 

Credit Scores and Low Interest Car Finance Offers 

When deciding whether or not you’re a good candidate for a car loan, there are several factors that car finance companies will consider. One of the major factors is your credit score. If you have an excellent credit score, you will have a better chance of getting car finance with lower interest rates, because lenders view you as being low-risk. 

However, if your credit score is not that great, then you will be seen as high risk. Lenders may turn down your car finance application. If they do grant you financing, it might be at higher interest rates. If you think your credit score isn’t that good yet, you may choose to take some time to improve it before applying for car finance so you’ll get better deals. 

The Bottom Line

The key is really to spend as much time as you need to look over the details of the deal before signing anything. Don’t be pressured if the representative of the car finance company has aggressive sales tactics. Get your decisions in principle and take the time to read through everything carefully. And if there’s something you don’t understand, ask your lender, don’t hold back!

Here at Carmoola, we can help you get the best car finance deal possible. Just pop our app into your phone, and zoom through the very simple steps we’ve set up to connect you with your dream car. We also have plenty of articles and in-depth guides about car finance to help you understand all of the terms and processes - knowledge is power! 👍