Buying a luxury car is an aspiration for many drivers. Luxury cars usually come with a higher price tag and many drivers are opting for some form of credit or loan to help them make their dream car a reality. Finance for a luxury car won’t be accessible to everyone and you will need to be accepted by a lender before you can shop for your next car. One big aspect of car finance is the interest rate. Your interest rate is determined by the lender and is affected by a number of personal factors. A higher interest rate means you pay more back to the lender overall and will be included in your monthly payments. When you’re shopping around for car finance, you should always try to get the lowest interest rate possible. Read our guide below on how to prepare for a car finance application and get the lowest interest rate possible.
Check your credit score.
Many drivers aren’t aware that a bad credit score can affect your interest rate when getting a car on finance. An applicant with a low credit score poses a higher risk to the lender as they usually show evidence of bad financial habits like missing payments or high amounts of debt. The lender will then set a higher interest rate based on the credit score. In preparation for your car finance application, you should check your credit report and see where you fall on the credit scale. If you feel your credit score could do with some work, take some time to fix the factors that are holding back your score and you’ll be in a better credit position when you apply.
Shop around.
Whilst your personal factors such as credit score can affect your interest rate, it can also depend on which lender you are applying with. Some lenders can offer lower finance rates than others which means it’s really important to do your research first. Shopping around for finance and making multiple applications with different lenders could harm your credit score in the process. This is why many drivers choose to use a car finance broker to help sort their finances for them. A broker for car finance is just like a mortgage broker and helps you to find the best finance deal with the lowest interest from a range of participating lenders. Once you’ve secured the best deal, you can then shop for the luxury car you want from a local or national UK dealer.
Choose a more expensive car.
In many cases, lenders may set higher interest rates when you only borrow a small amount. This is because they don’t make as much profit off smaller loans, but it can be good news for luxury car drivers as the loan amount will typically be higher. It can be worth seeing how much you could borrow and if borrowing more could tip you into a lower APR bracket. Remember, you should only ever borrow what you can afford to pay back. If you think you would struggle to pay back a higher loan, it’s best to go with what you can actually afford.
Shorter loan term.
Car finance is a flexible way to get a car and pay for it over a term that suits you. Most car finance deals are spread over 3-5 years, and you can adjust the loan term length to suit your monthly budget. You may notice a longer loan term reduces how much you need to pay each month because you are spreading the loan out for longer. However, this may not be the cheapest way to buy a car as it means you pay interest for longer and could end up being more expensive overall. When comparing car loans, you should try to choose the shortest loan term possible for your budget to help reduce the need for overpaying interest back to the lender.
Put down some money at the start.
Some car finance deals require customers to put down a deposit at the start of the agreement and lenders will usually ask you if you have any money to put down to secure the vehicle. There are many 0 deposit car finance deals you can take advantage of but having some money to put in at the start of the deal can help you get a lower interest rate. A deposit contribution shows good financial behavior and can help you to get a better finance deal.
