Cars are expensive. Whether you are buying new or secondhand, they can be a considerable financial commitment. However, there are lots of ways to fund your car purchase (check out our car buyers guide to car loan financing). And a personal loan is one of the simplest options available. It’s natural to want to keep your borrowing costs to a minimum. We’re here to help guide you through how to get the best low interest car loan available.
Work out what you can afford
Calculating how much you can borrow will make a big difference in achieving a low interest car loan. It’s important to know that not everyone gets the headline interest rate when it comes to a personal loan. In fact, only 51% of those accepted will get this. So to be in with the best chance of achieving this, try to make sure you are borrowing within your means.
Lenders will look at whether you have sufficient income to afford the loan when considering what interest rate to give you. So choosing a car within a reasonable budget, and showing that you can afford the monthly repayments based on your current income, will help you in achieving the lowest APR available.
Consider the loan amount
Car loan interest rates vary depending on how much you borrow and over what time period.
If you are only borrowing a small amount, for example under £3,000, then you will find that interest rates are relatively high. In this case, borrowing a little bit more may actually mean that you can achieve a lower interest rate. If you borrow above £5,000, you are likely to find that interest rates will be considerably lower than if you were borrowing under £3,000.
However, whenever you are looking at loans, you also need to consider the total cost of borrowing. While you may be able to bring your monthly repayments down a bit by committing to a longer term, the total amount you have to pay back will increase.
For more on all things personal loans and how they work, take a look at our loans guide.
It is always best to compare personal finance products. So, if you are looking for a low interest car loan, make sure you shop around.
You may find the car dealership has its own loan product, but this may not offer the best rate. Instead, try to use comparison sites to help you compare different products.
Look our for low interest rates and loans over not too long a period of time. Check the total cost of borrowing for each loan you’re comparing. Make sure you compare loans for the same amount and over the same time period, so that you can make a direct comparison.
It could help to try some eligibility checkers to find out which loans you would be accepted for. Just make sure that these only conduct a ‘soft search’, as ‘hard searches’ on your credit report can negatively affect your credit score.
Improve your credit score
Speaking of credit scores, the best way to get a low interest car loan is to have a good or excellent credit score. You are likely to find that the most competitive rates are only given to those with squeaky clean credit reports. If you don’t know what your credit score is, you can find this out for free at Experian, Transunion or Equifax.
So, to be in with the best chance of securing a low interest rate loan, look for ways to improve your credit score. This could be reducing your overall level of debt or making sure you are on the electoral roll. For more tips on how to do this, check out our article on how to improve your credit score.
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