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How to find the best loan to buy a car

If possible, secure a personal loan to purchase a car. These loans are unsecured, often have good interest rates and low fees, and you’ll own the car outright from the very beginning.

They are more difficult to get, however, as they are potentially riskier for the lender. You’ll have a better chance if your credit rating is in good shape and you have a healthy deposit to contribute to the purchase. Both of these factors will indicate to the lender that you are serious, and responsible enough to repay the loan as agreed.

 

How to apply for a car loan

First determine the amount you want to spend, either by shopping for a car first, or by looking at your finances and determining how much you want to allocate to the purchase of a vehicle.

Once you have that amount, set aside as much as you can for your share of the purchase – the deposit. The more you can contribute in this way, the more likely you are to get a loan, a good interest rate, and the cheaper the loan will be, as it will be smaller and paid off more quickly.

Provide this information, along with your credit information, personal information as needed, and your employment details.

The lender will assess your request and your details, and you will either be refused a loan, or offered one with specific interest rates and details.

 

Other types of car finance

Other choices that may be available for car finance – each with its own pros and cons – are hire purchase, personal contract purchase (PCP) and personal contract hire (PCH). It is always worth educating yourself on the options prior to making any financial decision.

 

FAQ

How can I make my car loan repayments as low as possible?

The easiest way is to have a longer loan period. This will make the overall cost of the loan higher, as you’ll be paying interest for longer, but if your primary concern is fitting the payment into your monthly budget, then it may be the best decision for you circumstances.

Other ways to reduce the monthly payment include contributing a higher amount to the deposit (which will lower the loan and may get you better rates), and negotiating for a lower interest rate.

 

What if I want to pay off my car loan early?

This is almost always an option, but may come with a fee of anywhere from one to three months’ worth of interest. This is to compensate the lender for the loss of interest they would have earned had you taken the full time to pay off the loan. In essence, you are modifying the original agreement, and so they take a fee to make the modification worthwhile from their point of view.

 

Missed car loan payment?

If this happens once, you will likely be contacted by the lender and reminded to make the payment. One instance of this is unlikely to cause any harm. However, if this becomes habitual, or if late payments are not caught up, the lender can take you to court to recoup the loan.

If the lender wins, which is usually the case, they can have bailiffs come and take the car and/or other assets you own until they have recouped the value owed. Sometimes extra can be added to this to compensate for costs. If there are insufficient assets on hand, you may have your wages reduced through an attachment of earnings, or they may even petition the court to have you declared bankrupt, crippling your access to credit, many types of jobs, and many housing options, for a considerable period of time.

It is ALWAYS the best idea to contact your lender if you are in financial trouble. Express your intention to catch up and ask for any leniency they can provide. If you are open and don’t try to hide or ignore the situation, they are far more likely to work to resolve the situation in a way that is not too damaging.

 

Section 75 protection with a car loan?

Personal loans are not covered by Section 75, though some people find a way around this by paying the deposit, or at least part of it, using a credit card.

You will always have more protection buying from a dealer than from a private individual, as a great expectation of expertise is applied to a professional than to a private individual.

 

Will I be credit checked for a car loan?

Yes. This is the standard method of determining your likelihood of repaying the loan. Once your credit rating is checked, it will be marked that you are seeking credit and your rating will be negatively affected. Because of this, only have a “hard check” done on your credit if you are very likely to go through with a loan, and never apply for more than one at a time. Once your credit rating indicates that there have been no hard credit checks made for a certain period of time, the negative effect on your rating will disappear.

 

What if I need to borrow more to buy my car than they will lend me?

You can find a way to increase your deposit (which may mean an additional loan), choose a cheaper car, or decline the loan. Your loan application will be included on your credit file though, so don’t just apply for several loans, or it will damage your rating.

 

What if the car has problems?

For many problems, the dealer will be responsible for the repairs (under the Consumer Rights Act). If there is something obviously wrong with the car from the beginning, avoid taking delivery. If the problem doesn’t show up until after you have the car, ask the dealer for a replacement or repairs.

If you purchased the car from a private seller, you have fewer rights. If buying privately, it is always a good idea to pay for a comprehensive mechanical inspection.

 

What will happen to my car loan if interest rates go up?

Probably nothing will change, as most personal loans in the UK are “fixed rate,” which means the interest rate given will stay the same for the duration of the loan period. Once you agree on the rate and accept the loan, it locks into that number.

 

Is it hard to get a car loan?

It is more difficult to get a personal loan than it used to be, but that depends a lot on your personal circumstances and credit history. If you do manage to get one, however, you’ll get the benefits of interest rates that are lower than they used to be.

 

How fast will I get the money for my car loan?

This varies depending on the lender. Lenders who promise same-day loan pay-outs may or may not be able to deliver on that promise, but they are almost invariably a lot more expensive than waiting a few days. Some of these cheaper loans also have an optional “rush” service, for which you pay a fee of somewhere around fifty pounds to get the money more quickly.