- Car finance deals set to become even better value
- Bank of England base rate drops from 0.5 percent to 0.25 percent
- High-interest deals could get cheaper when updated in October
The vast majority of UK drivers fund their cars with car finance, with the amount paid strongly affected by the base rate of interest set by the Bank of England. The Bank has taken the bold decision to drop this from its already historically low level of 0.5 percent to 0.25 percent today. But what does this mean for UK drivers?
The higher the interest level on a car finance scheme, the larger the monthly payments and the greater the premium paid for the privilege of spreading the cost. Interest rates typically vary from zero percent – meaning that you simply pay the list price across a deposit, monthly payments and an optional final payment to take ownership – to 7.9 percent or even higher in some cases.
The halving of the historically low Bank of England figure could result in the rate of interest charged for car finance dropping in many cases. Zero-percent offers – which often already include substantial deposit contributions – are unlikely to get any cheaper, but it’s likely that the higher rates charged by other manufacturers could drop when offers are updated.
Cheaper finance unlikely to be seen until October
Car finance offers are generally set at the start of each quarter. The next quarter starts on 1 October, and we’d expect a raft of lower interest rates to filter through then, with Ford confirming that the interest charged on its standard offers won’t change until then.
Companies such as Skoda and Mazda already offer zero-percent interest with additional discounts thrown in and it’s possible that more manufacturers will get in on the act. Meanwhile, brands that typically charge a higher rate of interest could take the move to cut these rates or be more willing to haggle in the dealership when pushed.
Dealers predict lower finance rates
Commenting on the news, Louise Wallis, head of business management at the National Franchised Dealers Association, said: “We would hope that car finance offers would reflect any drop in the base rate. Manufacturers don’t have to pass that on, but this should bring down the cost of finance.”
Meanwhile, the lower value of the pound means that cars built outside of the UK could effectively become more expensive for Brits to buy in pounds.
As a result, there could be little change in the prices paid by customers – with lower finance costs cancelled out by the weaker exchange rate. While the best value deals are unlikely to get much more appealing, Wallis expects that manufacturers with the priciest deals will cut interest rates to make these more competitive.
Should I get a car on finance now or wait?
Interest rates were already at a historic low before this latest announcement, with many manufacturers already offering zero-percent deals – in many cases with substantial discounts in the form of deposit contributions.
These remain great value options, so if you’re considering a car that costs less through finance than if you paid cash, go ahead. However, if you’re considering a car that has a high interest rate applied – anything over five percent will add substantially to the total amount you paid, unless large deposit contributions are thrown in – it may be worth waiting until October.
With a lower Bank of England base rate, it’s likely that the rates for these pricier deals will only come down. Consequently, holding out until the start of October could save you cash.
As finance deal terms are set when you sign the contract there’s never been a better time to fund a car through finance. Interest rates are lower than they’ve ever been, a large number of cars are available for less than the list price through finance – and even keener deals are likely to proliferate when new finance deals are published in October.
Check out some of the best value deals currently available on our Weekly Deal Watch page and cars you can get for less than £100 per month. If you haven’t considered finance before but are tempted now interest rates have fallen, our story on the ins and outs of car finance should help you make your mind up.