In the 2022, the UK interest rates have been higher than ever. The Bank of England has increased the official base rate which mean the cost for borrowing is higher. When it comes to getting a car on finance, you may be wondering how these increases will affect your current deal or when it comes to getting a car on finance. The guide below has been deigned to look at the ways in which you can help to lower your interest rate offered and also how higher UK interest rates will affect your borrowing.
How do interest rates affect car finance?
When the bank of England increases their base rate, it is usually to slow down spending and help to level out inflation. If you’re shopping around for a car on finance, the higher interest rates will usually affect your deal too. Both new and used cars are affected by interest rate hikes and it can make your deal more expensive than it needs to be. However, for many people their car is their lifeline, and they can’t wait for the interest rates to come down before they get a vehicle.
How to get a lower interest rate offered?
If you need a car whilst interest rates are high, there are a few factors that you could consider helping lower your interest rate offered and get a better deal.
- Shop around. Sometimes finding the lowest car finance APR rate take a little bit of time. Shopping around for the best car finance rates is essential to saving money on your deal. If you don’t want to apply with multiple lenders, you could consider using a car finance broker. Car finance brokers are designed to work on your behalf and have access to some of the most trusted lenders in the UK. They take your application and help find you the best car finance deal for you circumstances and work with the lenders on your behalf. You can then use your deal at any FCA approved dealer in the UK to get a car you want within your budget. This can also save time when comparing lenders and help get you a better deal.
- Stick to your budget. It can be tempting to increase your budget for car finance if it gets you a lower interest rate, but your car finance monthly payments need to be realistic and affordable. You will usually spread your deal over 3-5 years so it’s important that you know you can meet all payments on time and in full till the end of the term. Lenders will also usually perform and affordability assessment on your anyway so they know how much you can afford to put forward.
- Choose a shorter-term length. When you take out car finance, you will be able to choose a loan term that suits you. Usually, a car finance deal is taken over 3-5 years and by spreading your car finance payments over a longer term you will usually see lower monthly payments. However, the interest rate offered will usually increase. You can use a free car finance calculator to see how different loan terms can affect your interest rate and your monthly payments. Where possible, you should try to choose the lowest loan term possible for your circumstances to help lower the APR and pay your loan off faster too.
- Work on your credit score. Your credit score determines your interest rate that is offered by lenders. This is because having a low credit score increases the risk to the lender. The best car finance rates are usually reserved for those with better credit scores as they are less likely to default on their loan based on past experience of borrowing. If you’re looking to buy with bad credit, you could consider increasing your credit score and reducing any debt you owe to help make your finance deal more manageable and affordable.