Factors that Alter the Price of Your Car Finance

When it became clear that cars were going to change the face of transport, demand for them increased rapidly, but they were still among the most expensive items that people could buy. The then-president of General Motors, Alfred P Sloane, realized that his target market would be unable to afford his products unless he did something to help them, so he set up the General Motors Acceptance Corporation.

The first loans were to be repaid in instalments over 12 months, and purchasers needed a thirty-five percent deposit to qualify. The idea was originally expected to be popular in some of the US’s major cities, people were so thrilled to be able to take charge of their own transportation that the idea of borrowing money to buy a car took hold.

Not only were more and more cities keen to enjoy the benefits of personal transportation, but other car dealerships were quick to see the potential of the plan and offer their own financing deals. And thus, the car financing industry was born to serve the brand-new automotive market and the would-be drivers that wanted to make their dreams come true, whether that’s a luxury car with all-terrain Lexani tires or a family run around with plenty of trunk space.

Car finance today

What was once a bright idea from an automotive innovator has become a massive industry matching people with the perfect finance package to help them get their dream car. While the terms are certainly more flexible now than the first loans, there are some factors that will affect the amount you can borrow, such as:

Loan amount – the total that you borrow will affect the size of the repayments and the more interest you will pay. Many buyers work backward and calculate how much they can afford to repay every month and use that as a basis for their budget.

Term Length – if you are able to make higher repayments, you will reduce the term of the loan and pay less interest. Two years is normally the minimum term for a finance agreement, with most being spread over three or four years and some providers offering five-year loans.

Credit history – if you have a good credit score, you will usually get preferential rates as a dealership will see you as a safe bet for getting the repayments. Buyers with poor credit may struggle to get the best deals, but there are specialist loan providers that specialize in helping those with poor credit get a better deal.

Mileage – some finance agreements come with mileage clauses stipulating a maximum mileage allowance with charges for going over that number. These are usually found in Personal Contract Purchase (PCP) contracts and Personal Contract Hire (PCH) contracts where the car is usually returned to the leasing company at the end of the contract.

Keeping the costs of finance down

The basic rule of keeping your costs down when it comes to financing is to reduce the term or the total to minimize the amount of interest you are paying. However, once you have trimmed these as far as you can, you may still be able to save a little on your monthly repayments.

To make the most of the cheapest rates, you should keep an eye on your credit score and do whatever you can to repair it before applying for finance. This might mean reducing any accounts with high balances as much as possible and avoiding spending money on credit cards to show that you can afford the repayments comfortably.

While it may be tempting to underestimate the number of miles you do in order to get better rates on finance deals that include an allowance, it is usually a false economy as the charges for extra miles can be steep, so this is not an effective way to reduce your payments unless you are absolutely sure you can stay within the limits.

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