Top tips for cheap car loans
Don't buy a new or used car without reading our top tips for getting a cheap car loan.
If you're in the market for a new motor, you'll want to make sure your car loan is as cheap as possible. Try these four tips:
Use a personal loan, not dealer financing
If you get a loan through the dealer, you'll effectively pay interest to both the company that the dealer uses for finance and to the dealer itself for its own cut. This form of borrowing can be really expensive.
It's much cheaper to get an online personal loan, as the interest rates on these are currently less than 6% per year.
Let's say you need a £10,000 loan for your new car. Through the dealer you may face an interest rate of 10% or even more. So you'd be looking at repayments of £211 over a five-year loan, repaying a total of £12,622.
In contrast, the current market-leading loan for £10,000 comes from Tesco, with a rate of 5.7%. Over a five-year term your repayments would be £191.27, repaying a total of £11,476.20. That's more than £1,000 cheaper!
Regardless of your credit rating, when it comes to buying cars, it's usually cheaper to get all the extras and the financing from somewhere else.
Don't fall for the 0% finance con!
It's difficult to negotiate both a significant discount on a car and obtain 0% finance as well. If you have to choose, go for a minimum 10% discount on the car. Here's why:
Usually it's just people with excellent credit ratings who are offered 0% finance, which means you should be able to get a cheap loan elsewhere.
Let's say your car is worth £13,000. Over three years, with a 0% finance deal, this works out at £361 per month. However, if you knock the price down 10% to £11,700 and get a personal loan at 5.7%, you'll pay £354 per month, saving you almost £300 over the term of the loan.
If you can knock off 15% from the car price, it'd only cost you £334 per month, which is a saving of almost £1,000!
Read Car finance options for a full run down of the various ways to pay for your new vehicle.
Car insurance: another extra to avoid!
OK, you can't avoid car insurance. That would be illegal! However, you will almost certainly get a better deal on your car insurance if you buy it from somewhere other than your dealer, so get lots of quotes. You can do that by using our car insurance quote engine.
If you want to keep the costs to a minimum, be sure to follow these 25 ways to cut your car insurance.
And don't pay for featurs you don't need - check out Essential car insurance features for more.
Don't borrow, save!
Debts always cost a lot more in the long run. So if you know that you are going to need to buy a new car in the future, why not start putting some cash away each month to go towards the cost? You won't regret it! Head over to our savings centre to find the right savings account for you.
This is a lovemoney.com classic article that has been updated.
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