How to save money when financing a car

For many of us, a car is more than just a box on wheels.

It can be a pride and joy, a status symbol or lifeline to independence. Whatever your car means to you, you still want to make sure that you get the best possible deal for it. No-one wants to pay over the odds but if you are financing your car with something other than just cash, there is a good chance you will be paying more than you had hoped.

However, all is not lost, as there are still ways to save money when you are financing a car. These handy hints and tips can go a long way to saving you a few pounds that can be put into your petrol tank or electric charger instead.

Look at your credit score

If you need to borrow money to buy your car, then you need to make sure that your credit score is as high as it can be. The better your score, the better your chances of getting a low interest rate when you start shopping around for loans and finance. If your score is higher than you would like, then it could lead to your paying over the odds, so take some time to find out how you can raise your score to something healthier.

Think about how much you are borrowing

The amount that you want to borrow will help you to determine where that money should come from. If you only need a small loan then you might find it is subject to much higher interest rates, as you are probably going to pay it off quicker. If you are able to pay this amount in cash, then it might be a better option financially.

Make a change

If you have taken out a loan for a car, it doesn’t mean that you have to stick with it if you see better deals out there. It can sometimes make sense to refinance, either to take advantage of a better interest rate or to consolidate other debts into one. It can make your monthly outgoings more manageable and reduce the interest that you need to pay, however, you should work out which option will cost you more if your new deal ends up being over a longer period.

You should also look out for any fees that you may incur for paying off your finance deal early, as this may negate any savings you have made with the new deal.

Pick your moment

Tracy Hill, Marketing Manager at Car Mats UK, commented, “They say that timing is everything, and this is also true when it comes to buying a car. Most car dealerships are given targets that they need to reach during each quarter, and as that deadline approaches, they are more likely to slash the deals on the vehicles in order to make the number of sales that they need. That means that the end of March, June, September, and December can be your best time to negotiate a deal, and don’t be afraid to haggle, they probably need that sale more than you do.”

Shop around

If you are buying a car from a dealership, then the salesperson will probably want to push you in the direction of their own finance scheme. Whilst there are some good deals to be had on occasions, it is worth remembering that the person on the forecourt will be paid commission for this, and that will be paid for by heaping expenses onto your loan.

It therefore pays to look around for the best deal on a loan. This might be through comparison sites, credit cards or by talking to your bank. Once you have a few different quotes, you can work out which one actually gives you the better deal. Don’t let yourself be pressured into taking a loan from someone just because they are holding the keys to your new ride.

Think about leasing

If you are borrowing to buy a new car that you only expect to keep for a few years, then leasing might be a better option for you. In some cases, the monthly payment is actually lower than a car finance payment, and there are deals that can include tax or insurance.

As a car depreciates in value the minute it leaves the forecourt, many car owners can watch the amount their car is worth plummet, which is frustrating when you have borrowed money to buy it. With leasing, you are effectively hiring the use of the car and not the purchase, so you will not incur the full cost of that depreciation.

It is important to remember that in this situation, you will not own the car at the end of it and will then have to get a new deal on a new car or stump up the remaining value of the car you have at the moment.

Cut your costs

If you are financing a car, you need to be realistic about what you can actually afford. Not only do you need to think about monthly repayments, but all of the other costs involved in running a vehicle, such as tax, insurance, fuel and maintenance. These can all be expensive, and some of them can rise significantly when you are not expecting it, so you need to make sure that you are covered for these events. Sometimes, the best way to do this is to buy a cheaper car.

If the amount you are looking at seems a bit of a stretch, then ask yourself if it is worth doing. The better deal might be to buy something slightly smaller or slightly older so that at least you know it is within the range of what you can reasonably afford.

Whatever you buy, from a city run around to a supercar, a car is an expensive investment, so it is important to get it right. Work out your finances in advance so that you know what you can afford, and then research the best cars and the bests loans for you.