More drivers are choosing to spread the cost of their next vehicle by using a car finance agreement. Finance deals allow drivers who are accepted by a lender to borrow money and pay it back over an agreed time. You make monthly payments over a number of years, and it helps to get a better car than you would with cash alone. One of the first steps to getting a car on finance is setting an affordable monthly budget. If you really want to maximise your car finance deal, it can be worth considering the few points below on how to budget better.
Calculate your loan
Once you’ve settled on a budget for finance, you can use a vehicle price payment calculator to get an idea of how much you could borrow. You can set your budget, credit score and loan term length to see what your loan could look like. By adjusting the loan term either lower or higher, you can see how the length of the finance can affect the monthly payment price. Using this tool can help you find the sweet spot of what you could afford to pay.
Increase your credit score
Your credit score has a big influence on your ability to get a car on finance. Having a lower credit score can affect your ability to get approved and if you do receive approval, it can increase your interest rate. Interest can be factored into your monthly payments and a higher rate of interest can make finance a car more expensive.
Consider a PCP agreement
If you solely want to focus on low monthly payments, PCP finance could be the one for you. Personal Contract Purchase is a form of finance which offers low payments because the loan has a large balloon payment at the end of the deal. This payment needs to be me if you wish to keep the car, but it can be thousands of pounds to pay. This makes PCP a great option for drivers who want more flexibility to change their car more often.
Jumping at the first finance agreement you are offered can be tempting, especially if you have struggled to receive an approval. However, not shopping around for the best deal can mean you aren’t getting as much car for your money. Finding low monthly payments and a low interest rate can be the key to getting a cost-effective deal.
Reduce your debt
Freeing up some money to put towards your car finance budget can be really beneficial. One way to do this and also to improve your credit utilisation is to pay off some of your current debt. If you have a debt problem, it can put potential lenders off and make it harder for you to afford your finance payments.
To help keep costs low and get the most from your budget, it can be handy to buy a used car. Second-hand cars are more affordable and will have a lower purchase price than brand new cars.
Explore low insurance groups
When you’re budgeting for a car, you also need to factor in the cost of running a car. This can include fuel costs and insurance costs. It can be worth exploring cheap cars to insure to help keep your costs low and make your budget go further. Your personal information such as driving experience can affect the cost of your car insurance but the type of car you choose matters too so it’s worth taking into consideration.