Borrow more to save?
Borrowing more for a car loan could save you money, according to research by What Car?
Borrowing just £50 more for a new car loan can make it cheaper than taking out a smaller loan according to new research by What Car?, the UK's leading consumer advice champion.
Analysis of the UK's leading high street lenders suggests that borrowing the extra amount could save motorists up to £1600 over the course of the repayment period.
Loans of £5000 typically have lower interest rates than smaller loans. For example, the repayment total of a £5000 loan from TSB over four years comes in around £1300 cheaper than the repayment of a £4950 loan over the same period.
Similarly, at Lloyds the repayment on a £7500 loan over four years is £1601 less than the repayment for borrowing £7450.
What Car? editor Steve Huntingford said, 'We would always recommend borrowing as little as possible, but where the loan amount is close to the threshold for a lower interest rate, borrowing as little as £50 extra could save you 10 times that amount, so borrowers should do their homework.'
This trend was most commonly seen when analysing borrowing of amounts between £4500 and £8000.
Research shows that UK motorists are increasingly using finance options to aid with the purchase of cars. Within the first six months of 2018 there was a rise of 8% in car finance lending, with it topping £10bn.
However, while taking out a slightly bigger loan can save you money, there is a cut-off point, with loans of more than £8000 costing the borrower more the more they borrow.
Savvy shoppers are able to capitalise on these trends by not only borrowing smartly, but by using the What Car? Target Price on What Car? New Car Buying to ensure they get the best deal.
Car finance top tips:
Shop around – compare the types of finance available and choose the best option available to you
Don't stretch yourself – only borrow within your means, making sure you can afford the repayments
Additional charges – be aware of additional charges and always read the small print of your loan to be sure you don't end up with any nasty surprises.