>2023 Guide to the Best Car Finance Deals
2023 Guide to the Best Car Finance Deals
The best car finance deal offers you affordability and good value. Still, it’s not always easy to unearth a great deal amidst all the technical details and jargon. So we’ve put together a guide to finding the best car finance deals in 2023.
We'll help you wade through that jargon, hone in on the details you need to know and guide you towards the best possible finance deal for you.
Is it better to finance a car through a bank or a dealership?
Dealerships can offer attractive packages if you want the flexibility of a PCP. Financing your car through a bank can also be good if you get pre-approved for a loan. You also don’t have to worry about mileage caps.
Ultimately, it depends on what you’re looking for but I suggest that if you’re pre-approved by your bank you should then go to a dealership and compare their finance quotes to get a full picture of what's available.
Is a 5-year car loan worth it?
Taking out a 5-year car loan can be worth it compared to a shorter-term loan if you want to make lower monthly repayments. Bear in mind that the overall cost of buying the car will be higher as you’ll pay more in interest.
Of course, during the loan period, you can refinance your car but there are positives and negatives to that option, so you'll need to decide if car loan refinancing is right for you.
What’s the easiest way to finance a car?
The easiest way to finance a new car could be with PCP as this type of finance offers you flexibility, but a hire purchase deal may also be suitable. If you’re buying a used car, consider funding it with a personal loan or cash.
Finding the best car finance deal does take time, but armed with the details and need-to-knows we’ve talked about you’ll soon be on your way to owning that dream car.
Car finance options
Personal Contract Purchase (PCP)
PCP offers flexibility when the contract finishes. You could buy the car outright, upgrade it, or hand it back to the dealership if you don’t want to continue.
- Flexibility if you’re not sure about keeping the car long-term
- Repayments are usually lower than with hire purchase
- The final payment might be too expensive, limiting your options at the end of the contract
- There’s a cap on mileage, which if you exceed you’ll have to pay an extra charge per mile
Read More: Hire Purchase Vs PCP Pros And Cons
Hire Purchase (HP)
With a hire purchase agreement, you don’t own the car until the final payment is made. You pay a deposit and then the rest of the loan is divided into repayments, generally over five years.
- You own the car after the final payment, which isn’t a large payment as with PCP
- There’s no mileage limit
- If you can’t afford the payments the car might be repossessed as the loan is secured on the vehicle
- Your monthly repayments may be higher than if you took out a PCP agreement
Personal bank loan
A personal loan spreads the cost over a fixed period and the interest rate is also fixed.
- You own the car from the outset
- There’s no cap on mileage
- There’s no flexibility at the end of the loan agreement
- If you have a low credit rating you may have to pay a higher fixed interest rate
What do you need to know when looking for the best car finance deals?
Three key figures to look at and compare are the percentage APR, the interest rate, and the loan term. So what do these mean?
What is APR?
APR, or Annual Percentage Rate, is the total cost you’ll pay in a year for borrowing money. The APR includes the lender’s standard fees plus the interest rate. There are two different types of APR:
This is a representative figure you can use to compare car finance deals as a first step. Be aware, though, that even if lenders advertise what seems like a ‘good’ APR, they’re not obliged to offer it to you. This is where personal APR comes in.
A personal APR takes account of your personal financial situation, including your credit history, how much you want to borrow, and for how long. Based on this you could be offered a higher or lower APR, or the one advertised.
What are car loan interest rates?
The interest rate on your loan determines how much you’ll pay over and above the amount you’re borrowing. The higher the interest rate, the more you’ll pay for your car overall. When you take out a loan the interest is added and the total is divided into monthly instalments.
The interest rate you’re offered is based on your financial circumstances in the same way as the APR, so the basic difference between interest rates and APRs is that the APR figure includes the lender’s fees.
What is a loan term?
This is the length of time you’ll repay the loan. Choosing a shorter loan term means you’ll pay less in interest overall but your monthly repayments will be higher. A longer loan term means lower monthly instalments but the total cost of financing your car will be higher.
What are car loan fees?
It’s essential to know how much your car finance will really cost as lenders typically charge a range of fees. These can include an application or administration fee, early repayment fees, and in the case of a PCP deal, a price for exceeding the mileage cap.
How to find the best car finance deal in 2023
Shop around online or use a broker
Compare deals online using the APR figure as a starting point. You could also use a broker to find the best deals on your behalf. This can save time and many brokers work on a commission-only basis, which means you won’t pay a fee for their service.
Use pre-approval to protect your credit score
If you narrow down your search to one or two deals that seem good, see if the lender(s) will pre-approve you for the loan. Or if you’re going for a bank loan, ask your bank if they can do this.
Negotiate the price of the car
If you can negotiate down the price of the car you might be eligible for better finance deals in terms of the interest rate or length of the loan term.
Think about the running costs as well as the purchase price
Even if you’ve found a good finance deal, think about how much it’ll cost you to run the car. A car with a bigger engine could cost you more in fuel and insurance, so factor in the total cost of owning it before you go ahead.
Scrutinise the small print
The fine print will include any ‘hidden’ costs, such as early repayment fees and late payment penalties, as well as the interest rate, APR, and loan term.
How to find a good car finance deal
You need to shop around to find a good car finance deal and ensure your credit rating is as high as possible. Also, consider putting down a larger deposit if you can - 10% or more if possible - to lower your monthly repayments.
Can you get a 0% car finance deal?
You can get 0% car finance deals but you need to have an excellent credit rating. They’re commonly offered on new cars rather than used cars and can save you a lot of money. Be careful, though, because there might be other fees to add on that could make the 0% car finance less attractive.
What is a good APR?
A good APR is typically between 6% and 12% but this may only be available if you have a good or excellent credit score. If your credit score is lower, an APR between 13% and 20% could be considered good.
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