Car loan rates are one of the biggest topics for anyone intending to buy a car. It’s not hard to tell why: The monthly rate is possibly the most direct indication of whether you’ll be able to afford a car or not. No wonder, then, that the web is virtually swamped with car loan rate calculators, recommendations on how to get the best deal and companies trying to convince you they have the best car loan rates anywhere in the UK.
For anyone interested in getting a good deal, this may simply be too much information. Which is why we have put together an overview of the most important things you should take into consideration.
Car loan rates: Now may be the time to buy
One thing’s for sure, however: Now is certainly not the worst time in the world to start looking for a car loan. After all, with savings rates at a historical low all across Europe, it simply doesn’t make much sense to put your money on the bank and wait for it to magically multiply.
What’s more, car loan rates are at a very reasonable level at the moment, both for regular credits as well as bad credit car finance. If you really need a new vehicle, therefore, there’s no need to delay.
Saving vs borrowing
One of the most frequently asked questions we hear is: Should I use my savings to buy a car? Or is it okay to borrow the money? As with most financial considerations, there is not just one response to this.
If you pay for the car entirely out of your own pocket, you reap obvious benefits:
- You own the car outright.
- You don’t need to worry about the best APR (annual percentage rate) or the ideal monthly payment.
On the other hand, an auto loan also has its advantages:
- If you borrow money and then pay it off without fail, you can improve your credit score.
- You can use your savings for a lucrative investment. Or you can just keep them on your account as a precautionary measure.
So what to do? USA Today says it best:
“It’s crucial to be realistic about what you can spend, and make a good plan … but after you have a structure in place, it’s also important to relax. If savings becomes a daily or hourly battle to pinch pennies, you can seriously stress yourself out — not to mention your spouse or children.”
Car loan rates: What determines your rate
Sometimes, car loan rates can be confusing. What, exactly, determines how much you’ll need to pay? Why do some buyers get more favourable conditions than others?
Here’s a list of the most important factors for car loan rates:
- The general rate of interest: With general interest rates at a low, there is a definite potential for car loan rates to go down as well. Which means you may be able to get a favourable deal.
- Your credit rating: Unfortunately, credit ratings are pretty vital when it comes to determining car loan rates. Fortunately, there are various steps you can take to improve it.
- The dealer: Different dealers can have very different conditions, even within the same city. Explaining these differences can be something of a mystery, but you should at least be aware of them.
- The car in question: It makes sense that very attractive cars can yield higher car loan rates than less trendy ones. It also matters whether you’re buying a new or used car – although the difference in rate between the two has gone down over the years.
- Your negotiating skills: Contrary to what you may think, you actually have some leverage. The market for car loan rates is highly competitive and it may be better for a dealer to give you a slightly less expensive rate than to lose you as a customer altogether.
APR vs Monthly Payment: What to focus on?
Often, you will find recommendations to always base your auto loan decisions on the annual percentage rate alone. This is indeed a commendable approach – at least in theory.
The idea behind focusing on the APR of your loan payment is that this number expresses the true cost of the transaction: The higher the APR, the more you will end up paying for the car. This is true regardless of your monthly payment.
At the same time, this approach has an important flaw: What’s the use of a low APR if you can not afford to pay off your monthly auto loan? Especially if you’re low on cash, it makes sense to work out how much you can afford first. Then, search for the best financing options within that framework.
Where to get your money: Bank vs dealer vs credit card
Now you have the basics down, what’s the best lender: A traditional bank, online banking, credit union or the dealership? Or should you simply use your credit card?
Here are some considerations to make this decision easier:
Banks: Weigh your Chances
If your credit worthiness is fine, a bank is a reasonable choice. Their car loan rates tend be okay and it can be helpful to have a contact person to talk to if you run into trouble. For anyone with a low credit score, however, the chances of actually securing financing with a bank are low.
Online banking: Don’t expect too much
Online banks save on many of the costs of retail banking: Labour costs, rent etc … Some of these savings are passed on to you. If you’re lucky, therefore, online banking can get you better car loan rates. Don’t expect too much, however: Many of these ‘new’ financial institutions are actually owned by one of the big traditional banks.
Credit Unions: No Panacea
Credit Unions present themselves as a more customer oriented, and ‘fair’ lender, compared to big finance. And indeed, the conditions at a credit union can definitely feel more agreeable. In the end, however, it pays off to be realistic. Just as with a bank, you will need to pay off your car loan in full. And the APR may be better. But they can certainly not perform any miracles.
Credit Cards: Chance and Risk
Paying for a car with your credit card is still a rare feat in the UK. For one, most credit cards don’t allow for items as expensive as a vehicle. Secondly, many households are barred from using a credit card because of their low credit worthiness. And finally, we have all been warned against maxing out on your credit card and keeping debt down.
It is probably true that you should keep your credit card expenses down. On the other hand, paying by card has one decisive benefit: It can help you improve your credit score. As long as you always pay off your debt, your status as a trustworthy borrower becomes rock solid. Even if you can not pay for an entire car by card, using a credit card can this help you find suitable financing with a lender like a bank or dealership.
The Money Advice Service recommends:
“Even if you use money from your savings you might be better paying for some of the car on your credit card so you benefit from credit card purchase protection – putting just £100 of the cost of the vehicle means the card company is jointly liable with the retailer if something goes wrong. You should pay the bill off in full the next month.”
Dealership: The under appreciated source
Dealers have gotten a bad rep when it comes to finance. They have the black sheep of the industry to blame for that. Today, however, the dealership tends to be a professional and competitive lender. It may not be as flashy as online banking. But many dealers can get you excellent car loan rates. Especially if you would like to keep your monthly loan payment low, the dealer should be the first person to talk to.
Getting a car loan: What to watch out for
As you’ve seen, two out of the five points we mentioned above for determining car loan rates relate to the dealer and your rapport with him. This obviously also means that you’ll need to be careful and avoid some of the most common traps.
Here are some of the most important things to watch our for when looking for car loan rates:
- Car loan rates should only relate to the car you’re buying. Very often, however, dealers will try to sneak in various other products and sell you insurances or services. Whether or not these make sense is another question, but it definitely comes recommended to keep things clearly separated from each other.
- If you want to compare car loan rates from different dealers, you’ll need to make them comparable first. The monthly car loan rate is the least important thing in these calculations. What really matters is the actual rate, since this is what ultimately determines how much you’ll have to pay back.
- It definitely makes sense to know your credit rating before entering into negotiations with a sales man. Also, make sure to prepare suitable explanations for your current financial status and to be able to demonstrate that you’re willing to improve if you should have run into financial difficulties in the past.
Car loan rates at CCC
At Concept Car Credit, we try to focus on two things: Giving you great and fair car loan rates even if you should have a bad credit rating and allowing you to choose from a breathtaking collection of cars. After all, what use are low car loan rates if you can’t get the vehicle you need or want?
Talk to us now for any questions or simply drop by our showroom in Manchester. We can’t wait to show you what we have in store.