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I would like to borrow
£1,500
To pay back over
3.5 years

Representative Example: Borrowing £5,500 over 48 months with a representative APR of 19.8%, the amount payable would be £163 a month, with a total cost of credit of £2,283 and a total amount payable of £7,783.

How to lower car loan payments

When you’re taking out a loan to buy a car, the question at the forefront of your mind is likely to be ‘how much will I pay per month?’ Naturally, anyone would want this figure to be as low as possible, so it’s worth doing your homework on how to lower car loan payments.

Types of loan

There are two main types of car loan, and the one you choose can have a significant impact on how much your monthly repayments will be.

Personal loan

A personal loan is not secured on the vehicle. This means you are the car’s owner right from the start, and as such are free to do as you please. If you want to modify the car, you can. If you decide it’s not quite the right car for you and wish to sell it on, you can, and you can do this as soon after buying it if you like.

Personal loans are generally available to those with good credit scores. The better your credit rating, the better your chances of getting a good interest rate. The lower the interest rate, the lower your car loan payments will be.

The rates applied to personal loans may not be as favourable as those available for fixed sum loans.

Fixed sum loans

Fixed sum loans are secured on the car itself. The lender can repossess the car if you fall behind on repayments, which means this type of lending poses less risk for them.

Banks, building societies and other financial institutions tend to offer better interest rates for fixed sum, or secured, loans than for personal loans. This is because of the reduced risk. For the buyer, it is attractive because it can mean a lower amount per month in car loan payments.

One drawback is that you will not own the car until the finance had been fully settled. A benefit, however, is that the lender may assist you with any vehicle issues experienced in the early days of the loan. This is because the car is an asset and of value to them, so it’s in their interests to protect that asset.

Lowering car loan payments

The first thing you may do is to opt for a fixed sum loan, as this may make for lower monthly payments.

A fixed sum loan may not suit you, however, so you also need to consider what best fits your needs and requirements. You should also check what rates are available for both types of loan. In the world of borrowing, it’s wise not make assumptions, thus checking rates for both kinds of loan would be prudent.

Interest rates are the next thing to check. A lower interest rate means lower regular repayments, and that the total sum paid for the car will also be lower. Rates are advertised as the APR - annual percentage rate.

When you see rates listed, you may notice that they are described as ‘representative’. This means the lender must make this rate available to at least 51% of those taking out the loan. As for the other 49% - they may have to pay more. To factor this in, you must check any loan that is offered to you very carefully - including the actual interest rate or APR offered.

You may think that buying a more expensive car will cost more, or that having a large deposit will mean it costs less. Lenders tend to set lower interest rates for those borrowing more, though, so this can be more complex than it may first appear.

The bottom line

The only way to be certain of lower car loan payments is to work out the total amount you will pay – including any deposit and the interest due. If you work this out for all finance options, it will soon become clear which really is the best available deal.

Other related FAQs

Looking for more related content to this? We’ve picked a selection of related topics that you may find helpful

If you want to pay off your car finance early, check the terms of your deal and contact your lender to discuss your options.

If you want to pay off your car loan faster, your first step should be to contact your lender to request a settlement figure.

If you want to pay off a car loan with a credit card, look for a card with a good rate on money transfers - and decide whether to use the money to pay the loan off in full or gradually.

If you’re struggling to pay your car loan, your first step should be to speak to your lender. They may come to an agreement to help you make your repayments. You could also seek help from a debt advice organisation.