Car loan options
What are your car finance options?
If you are thinking about buying a new car, whether it be brand new or second hand, you are probably wondering how you are going to finance your purchase. You may be of a mind just to take the finance agreement that is offered by the dealer you use, but rather than taking the first option that is presented to you, you should instead take the time to check out all of your options as, depending on your loan amount, you could well have a number of options with some being significantly cheaper than others. Therefore the basic advice here is to spend at least as much time researching your loan options as you spend researching your car options.
Hire purchase finance
Perhaps the most common type of loan to pay for a new car is a hire purchase plan. These plans require you to put down a deposit, usually set as a percentage of the total value of your new vehicle, to be able to take up this type of loan. Some types of hire purchase agreement also allow you to use your old car as either a partial, or whole, deposit as a part-exchange, but you should note that the amount you will get for your old vehicle will not be as much as if you sold that and then used the proceeds to provide your deposit.
You will also be signing up to make a set number of repayments over a particular term. If you are thinking that you can be flexible with these and choose to overpay or pay off the loan early you will find that you could be subject to financial penalties for doing so. Although your car remains the property of the dealer until you have paid off your loan you can drive your new car from the first day of the loan. Once you pay the final instalment, which is often larger than your other payments, you then own your car outright.
Things to note with hire purchase plans
You should be aware of a few things before you take out a hire purchase plan. Firstly, if you run into trouble making the repayments you could be at risk of losing your car, however the process of repossession is complex and you will be given a number of chances to catch up with your payments before your car is removed. You should also note that you cannot sell your car privately until the loan has been repaid in full.
Personal loans for car purchase
Unsecured loans for a car purchase
A personal unsecured loan is generally a better option than a hire purchase plan as you can take advantage of relatively low interest rates. Unlike a hire purchase plan, you have much more control over a personal loan. You can repay it early if you wish or make overpayments if you are able and if you find that your repayments are unmanageable you can also sell your car in order to pay off the loan. The main disadvantage of personal loans are that they are usually limited to between £7,500 and £15,000, so if you want to borrow a smaller amount you will have to decide whether to take out a larger loan than you need or use an alternative option.
Loan calculator – how much will it cost?
Use this calculator to find out how much the loan will cost each month, and what the total interest payments are.
This calculator will give you an idea of costs. The exact amount and APR payable will be provided from the lender subject to credit and affordability checks.
Your monthly payment will be:
Interest on this loan will be:
Annual Percentage Rate (APR):
Total repaid will be:
0% Credit cards
If you are disciplined with your finances you may find that a 0% credit card can provide you with the funds you need to make your purchase. These only offer a better solution if you are disciplined enough to avoid the high interest rates at the end of the 0% period. You will also need a good credit history to be able to use this method.
Taking out a lease agreement
Instead of a hire purchase plan, this offers you the chance to drive a brand new car using a long-term rental contract. You pay a monthly fee without having to buy the car you are driving. This is one way of upgrading your car every few years. You should take careful note of your agreement type as a Personal Contract Purchase you will buy the car at the end of the contract, but a Personal Contract Hire means you do not have to buy the car.