If you’re in the market for a new car then you may have a few concerns about how you’re going to pay for it. More specifically, you might be considering how to reduce your monthly repayment amount. Ultimately, this is the only figure that matters if you’re looking to buy a car on finance. Whatever your car might cost initially, it doesn’t matter if you can’t afford those monthly repayments.
Recent research we completed showed that 42 percent of car buyers would prefer to take out car finance to buy a car, so that they know the monthly repayments – even if that means that they pay slightly more for the car. Remember that by buying a car on finance you will be paying interest, which means that a £20,000 price tag works out a little (or lot!) more over the years.
What will monthly payments be for a car?
First of all, set your expectations. Very few cars will be financed for less than £100 a month, especially if you are looking at newer models. But the monthly payments of your car completely depend on the original price, your deposit, the type of finance agreement you enter into, and, of course, the interest. But it’s important to note that you can manipulate nearly all of these in order to get a deal that works best for you. Let’s show you how.
How to reduce your monthly repayment amount with your deposit
It’s the same as buying a house (another complicated financial process we know!). But the higher your deposit, the better for your monthly repayments. But why is this? Well, that’s because you reduce the amount of money you need to pay back that will have finance attached to it. For example, if your car costs £20,000 and you put down a £3,000 deposit, you will only have to repay £17,000, which means that you’re only paying interest on £17,000 as opposed to the entire £20,000 of the car.
Not only that, but the smaller your monthly repayments will be. The interest rate will be the same, no matter if you have a deposit or not. So, if you pay a big deposit, your monthly repayments will be smaller also. Less money borrowed, less interest paid, smaller payments to make.
How to reduce your monthly repayment amount with your financial agreement
There are typically two types of financial agreements. One, a Hire Purchase and the other, a Personal Contract Purchase. Now, if you are looking for cheaper monthly repayments, a PCP will certainly be the best option. However, if you can afford to go for the hire purchase, you don’t put a lot of miles on your vehicle, and it’s generally kept in good condition, this could also be a good option for you.
But why? A hire purchase is certainly the more expensive monthly option, that’s for sure. But at the end of your agreement you own the car – making your monthly repayment amount zero. If you enter into a PCP, you’ll have to save the money to pay off the final balloon payment, or you’ll continue in the cycle of monthly payments. This might work for you if you plan on switching cars often and travel far for work, but it’s something to consider now. Slightly higher payments now for zero in a few years, or continual lower payments for the foreseeable future.
How else you can reduce the monthly repayments on your car
Now, this may seem a little obvious, but it’s important to note. A major way to lower your repayment is to lower the cost of the car you’re buying. You may love a car, it has all the gadgets you want, but it’s expensive and you’ve decided it’s out of your price range. So why not see if there is a similar model, but a slightly cheaper version? You’ll notice that many Audi and Volkswagen cars are similar to Seat. That’s because many of their cars are slightly cheaper models without the “premium” brand stuck on the front. You’re not missing out on the essentials, all you’re doing is swapping out for less expensive interior materials and seat coverings.
Another way to lower your monthly repayments is to look at the interest on your car. Now, this is probably best to consider before you look at cars as once you head into a dealership, their rates are set and very rarely will you be able to manipulate them. However, there are interesting deals going on, all the time. Keep an eye on these. If you know you want to buy a car relatively soon, you know what budget you want to go for, and roughly what you want from your car, start keeping an eye out for any interest deals and strike while they’re hot.
Looking for a new car or car finance?
If you’re looking for car finance deals or even finance on cars if you have bad credit, contact the ChooseMyCar team. As car finance specialists, we understand that it’s not always possible to have the perfect credit score, whether you’ve not taken out credit before, or have experienced credit problems in the past. Bad credit doesn’t have to mean you can’t buy a car.
