Car finance is much more common nowadays than it was years ago, as more and more people are wanting to own their dream vehicle sooner. There are lots of options out there too, such as car finance with defaults and even car finance for those with bad credit. However, if you haven’t had car finance before, you might be wondering how it’s worked out. If so, keep reading and discover just how car finance is calculated. 


The first thing to take into consideration is the amount of money you put down as a deposit when completing your finance process. For example, if the total amount repayable for the car is £20,000 and you put down a deposit down of £5,000, you’ll only then have to repay £15,000 over your agreed term. This can help make your monthly repayments lower as you won’t have as high of a repayable amount. There are options out there that allow you make zero deposit, but you’ll probably have to repay a bit more each month instead. 

Interest Rates

Just like regular loans, interest rates will impact how your car finance is calculated. The bigger the deposit that you put down, the lower your interest rate could be. So again, your repayments could be a lot lower. Most of the time, a 0% interest rate on a car finance option is for those who are able to put down a decent sized deposit. So, your interest rate will fluctuate and change depending on this, so it’s important to keep that in mind. 


Your affordability will be taking into consideration when you apply for car finance. The lender will take a look at your credit score and see what your affordability is like. If your credit score is bad, it could signify to them that you’re not great at making monthly repayments. This could lead to your application being rejected or being subjected to higher interest rates as a way of ensuring it’s repaid. However, there are car finance options out there for everyone regardless of their financial situation. How much you can afford to pay each month will be taken into consideration when calculating your finance repayments too. This is so that the lender has the best chance possible of receiving their repayments each month, and not setting you up for failure. So, while your affordability is important when your finance is being calculated, it will vary depending on what type of finance you apply for. 

Car finance is a great way to get the car that you’ve always wanted without having to use your entire savings. How it’s calculated may be different depending on which lender you go to, but they’ll all follow a fairly similar method like the one above. So, if you’re interested in applying for car finance, be sure to speak to the lender and see what criteria they’ll need from you. It’s also smart to ask them how you can better your monthly repayments and you’ll hopefully find that your calculated finance is more than manageable for your budget.

By Grace