If you’re shopping for a new car, you’ll be bombarded with an array of tempting car finance options. Some offers will be better than, however, so it’s important to know how to find cheap car finance and to recognise what’s best for you.
Myriad brands will offer interest-free finance, deposit contributions, and attractive discounts and free extras, all of which are beneficial. Others, though, may sting you with high APR charges and ancillary fees.
Consequently, it’s worth doing your homework to make sure you get a great finance deal on your next new car. Pick poorly and you could get locked into a contract that costs thousands more in additional interest and fees.
To help avoid potential nightmares, we’ve put together a guide on how to recognise and find great car finance deals.
Cheap car finance: how does it work?
Broadly speaking, there are three ways to finance a car. First up is the humble bank loan. You get a personal loan, you buy the car, you own the car, you pay the bank back.
Then there is finance that is secured against the car itself. This typically involves arranging for finance directly from the manufacturer or a dealer. There are two common options: PCP and HP.
PCP (Personal Contract Purchase) involves putting down a deposit – although sometimes it’s not required – and then paying a series of fixed monthly payments. At the end of the term, you can either hand the car back or pay the remaining optional final payment to keep the car.
HP (Hire Purchase) allows you to split the cost of a car between a deposit and monthly payments. Once you’ve paid off these payments, the car is yours. You’ll pay more monthly than you would with a PCP deal but, if you know you want the car and you’re confident in your situation not changing, you won’t have to hand the car back or pay a large lump sum at the end of the agreement.
One prominent difference between using car finance or a bank loan is that the finance option may sometimes involve artificially low APR interest rates, or sometimes no APR at all.
Many manufacturers, for example, offer 0% APR deals on their new car PCP deals – and it’s a good way of helping keep overall costs down. The lower the APR, the cheaper the finance deal.
It’s worth mentioning here that these are representative APR figures. This means not everyone will be eligible for them. Interest rates will vary depending on your credit score, so it’s worth understanding the exact APR applied to the car you want to get.
Cheap car finance: understanding low and 0% APR deals
The Annual Percentage Rate – APR – effectively tells you how much the finance will cost. This means that you want to keep that number as low as possible.
APR on car finance deals is largely dependent on the buyer’s financial situation. The particular make and model of the car can also factor into the specified APR.
With some marques, the most affordable cars come with the lowest interest rates. Others may offer larger incentives on pricier models. This means it’s worth taking the time to work out which option represents the best value for money.
Numerous car companies offer 0% APR deals. These lets you spread the cost of a car over a deposit, a series of monthly payments and an optional final payment – with no interest charged for the privilege.
Others, however, may charge as much as 9.9% APR for a new car, or even 20% or more for a used one. Get shackled into one of these contracts and the interest costs alone could be thousands. Ultimately, you could pay much more than the car would have cost if you had just bought it outright.
Manufacturers can also hide high overall costs. This is often achieved by employing large deposits and long contracts, which artificially make the monthly payments look more affordable. Remember: the longer the contract, the more cost you’ll incur as a result of interest, if applicable.
Whatever you’re considering, look at the total amount payable figure and make sure it’s a number you’re comfortable with.
>> The latest 0% APR car deals
Finding cheap car finance deals
We regularly hunt down the best finance deals and separate them by price. This makes it easy to find cheap car finance deals: just set a monthly budget, and stick to it, and browse the listed offers in that bracket.
You can also browse manufacturer websites for cheap finance deals, and they will usually have a section that lists their current promotions and offers. They can change regularly, so it’s worth revisiting them occasionally to see if there’s anything new.
If you’ve a figure in mind, check out our grouped top cheap car finance picks below.
>> Best cars for £90 per month
>> Best cars for £100 per month
>> Best cars for £150 per month
>> Best cars for £200 per month
>> Best cars for £300 per month
>> Best cars for £400 per month
>> Top PCH, PCP, and cash deals
Cheap car finance deals with no deposit
It is possible to finance a new car without having to put any money down, but such a deal will require a good credit rating. And, unless you’ve secured a 0% APR finance deal, the lower the deposit you’ll pay, the more you’ll pay in interest costs – because you’ll be financing a larger amount of the purchase.
>> No-deposit car finance explained, plus the latest no-deposit deals
What can make a tremendous difference to any finance deal, however, are deposit contributions. These can deliver big savings, even if the APR or deposit for a deal aren’t as good as one offered elsewhere.
If the deposit contribution is large enough, the effective saving can more than cancel out the interest. This means that not only is there effectively no interest to pay, but you save money compared to buying the car with cash or a loan.
Even better is when a manufacturer provides a deposit contribution and interest-free credit on the same car. No deposit may be required in some cases, too, making the offer even more appealing.
It won’t take you long to work out how much of a cheap finance deal you’ve found. Just compare the list price of the car with the total amount payable for the finance deal, and you’ll quickly be able to see the potential saving.
>> No deposit 0% car finance deals
Never assume manufacturers offer the cheapest deals
Most new car buyers finance their car through the manufacturer. Don’t think, however, that going to the source is a guarantee of a good deal.
Some companies offer finance that employs high APR rates, upwards of 9% and even beyond. This is usually indicative of a poor deal. Generally, around 5% APR is the sign of a moderate deal. Anything around 2% or below is considered cheap finance.
As a result, it’s always worth phoning around a few dealers, and scouring the internet, to see if there’s a better offer available.
Don’t be afraid to haggle – push for discounts and free extras
Whatever the supplier or dealer might say, it is always worth pushing for the best deal possible with finance. And don’t forget that you can negotiate on the finance deal as well as the price of the car. That said, whoever you’re dealing with might be more able to throw extras into the deal rather than offering price reductions.
To get the biggest savings, push for a discount on the list price first, then focus on getting several extras added. Afterwards, concentrate on making sure the finance offer is as good as it can be. However, on more popular cars, the harder it will be to get big savings.
Going after something less popular can be advantageous. Find a car that’s not selling very well and, provided you like it, you should be able to get greater discounts or more extras included. Large deposit contributions and lower-percent APR deals are always a good indicator of a car a manufacturer wants to shift.
Whatever you choose to do, always remember to consider all the potential costs, obligations and requirements of any finance deal, to avoid surprises later.
Further reading
>> Excess mileage charges and how they cost you dearly
>> What happens at the end of a PCP finance deal?
>> Negative equity car finance: everything you need to know
