How to find cheap car finance

  • Opting for cheap car finance makes a big difference to what car you can afford 
  • How to find cheap car finance deals
  • Be aware that not all dealer finance is good value - compare the cost of different funding formats

Cheap car finance

It’s hard to walk into a dealership without being bombarded with different finance options. However, not all car finance deals provide good value.

While some brands offer interest-free finance, attractive discounts and free extras, others will sting you with high APR charges plus steep 'first credit arrangement fees' and 'option to purchase' bills.

To make sure you get a great deal it’s worth doing your homework, as this will help you avoid being locked into an expensive contract that could cost you thousands in interest and fees.

Cheap car finance: how does it work?

Broadly there are three ways to buy a car outright. First up, the humble bank loan. Get loan, own car, pay bank back. Simple.

Then there are manufacturer-backed deals. This means sorting the finance for the car directly at the source. There are broadly two camps - PCP and HP.

PCP (Personal Contract Purchase) sees you put down a deposit (although sometimes it's not needed), pay a series of fixed monthly payments, then you can hand the car back, settle the balance with a balloon payment, or chop it in and hope you have some equity in 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.

The main difference between manufacturer-backed deals and bank loans is that often car makers can charge you an artificially low APR, or sometimes no APR at all. Going with a 0% APR deal is a surefire way of getting cheap car finance. The lower the APR, the cheaper your finance deal.

It's worth mentioning here that these are representative APR rates - meaning 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.

Renault Dealership

Cheap car finance: low and 0% APR deals

APR rates on car finance deals are largely dependent on you and your financial situations. But they can also be determined by what car, and more precisely, what model, you're after.

With some marques, the most affordable models come with the lowest interest rates. While others offer larger incentives on pricier models – so it pays to do your homework.

Manufacturers often hide high overall costs in large deposits and long contracts, which artificially make your monthly payments look more affordable. But APR charges should give you a clear idea of how much of a premium you're paying for recompensing in instalments.

Numerous car companies offer 0% APR deals, letting 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 brand new car or even 20% or more for a used one. Get shackled into one of these contracts and you could find yourself spending thousands in interest alone.

The longer the finance term, the more the interest racks up, too.

>> The latest 0% APR car deals

Cheap car finance deals

The number one pick for securing cheap car finance is to set yourself a monthly budget, and stick to it. Luckily here at Parkers, we regularly hunt down the best finance deals and separate them by price.

>> 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 no deposit

It is possible to finance a new car without having to put any money down. These deals are reserved for people with good credit ratings. But remember, unless you've secured a 0% APR deal, the lower the deposit you pay, the more you'll have to stump up overall, since interest is being applied to a large value.

>> No deposit car finance explained plus the latest no deposit deals

Potentially more important than the APR charges and deposit deals are deposit contribution discounts.

If the saving is large enough, this can more than cancel out interest charges, meaning that not only is there effectively no interest to pay, but you actually save money compared with paying cash.

Better than this, a handful of manufacturers will give you a deposit contribution discount and interest-free credit on the same car. In some cases, you don't even have to put down a deposit.

>> No deposit 0% car finance deals

2020 BMW X2

Never assume manufacturers offer the cheapest deals

Most new car buyers may finance their car through the manufacturer, but don't think going to a dealer is a guarantee of a fair deal.

Some manufacturers offer extortionate APR rates - we've seen as high as 9.9% for some smaller and cheaper cars. Generally, 4% is the sign of a moderate APR deal, with 2% considered cheap.

And remember, some dealerships actually receive a commision payment for charging consumers a higher APR rating than necessary.

Don’t be afraid to haggle – push for list price discounts and free extras

Whatever the dealer might say, it is always worth pushing for the best deal possible with finance. You can negotiate on the finance deal as well as the price of the car, though sales people might be more able to throw extras into the deal rather than slashing the price.

You're likely to get the biggest savings by pushing for a discount on the list price first, focusing on getting several extras thrown in and then making sure the finance offer is as good as it can be. Be aware that the more popular the car, the harder it'll be to get big savings.

Choose a model that has been out longer, though, or is not selling very well and you should be able to push for greater discounts.

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