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Zuto is a credit broker, not a lender. Our rates start from 7.9% APR. The rate you are offered will depend on your individual circumstances. Representative Example: Borrowing £7,000 over 48 months with a representative APR of 19.3%, the amount payable would be £205 a month, with a total cost of credit of £2,831 and a total amount payable of £9,831.

Does car finance count as a loan?

Personal finance is a complicated area – and it’s sometimes difficult to understand the differences between the enormous range of finance products that are on the market at any one time. 

Since lots of customers ask whether or not car finance is a personal loan, we’ve explored the subject in a little more detail here.

Different types of car loan

Generally, the reason people want to know whether a car finance agreement is considered a loan comes down to how banks and other finance organisations consider their financial health.

When a finance product is ‘secured’ against something (often a house, a car, or another large purchase), it’s considered to be less of a risk than a product that has no security.


Well, it’s all about how likely the bank or finance company are to get back what’s owed to them if repayments stop for any reason. For instance, if you lost your job and could no longer pay a secured car loan, then the finance company would look at recovering the car, selling it, and settling the outstanding debt that way. On the other hand, if you used a personal loan to buy the car, the finance company would have to explore debt recovery routes or set up a repayment plan with terms less favourable to them to get as much money back as possible.

So clearly, the risk involved with a personal loan is greater. What’s more, a personal loan could have some element of the overall repayment amount written off altogether if someone runs into financial problems and explores insolvency proceedings – like an Individual Voluntary Agreement (IVA).

Different lines of credit

Since different types of finance product come with different levels of risk, banks will generally limit the amount you can borrow using each product. For instance, you might have no problem getting a mortgage for £100,000 – but getting a personal loan for the same amount is likely to be much more difficult. 

The limits that are decided will depend on your personal circumstances – but secured products tend to have higher limits, as the risk is lower.

Is a car loan a secured loan?

Whether or not your car loan is a secured loan will depend on the product you’ve picked in the first place.

Many types of car finance are secured, including:

  • Personal contract purchases – also known as ‘PCP’ or ‘personal contract plans’
  • Hire purchase plans – also known as ‘HP’
  • Personal contract hire – also called ‘contract lease’ plans
  • Logbook loans – generally not a way of purchasing a car, instead, usually a smaller loan that’s secured against your vehicle

With these products, falling into arrears may lead to your car being recovered by the finance company and sold to recoup their losses. 

On the other hand, if you’ve opted for a personal loan, you’ll find these are not usually secured against your vehicle. Since lenders will consider there to be an upper amount you can borrow as a personal loan, this often means your borrowing power is limited if you need further personal loans – but it does mean you’ve got a lot more flexibility when picking a car.

Personal loans offer greater flexibility because the finance company will not be relying on your car to get their money back should you run into problems. As such, personal loans are often a better choice if you’re looking at buying an older car, a classic, or an imported vehicle.

Other related FAQs

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

Your ‘settlement figure’ is the amount that the car finance company require to pay off your finance in full. Since this changes as interest is added and as payments are made, requested settlement figures are usually only valid for a short time.

Car finance companies don’t usually contact employers to assess eligibility. However, in some circumstances, they might.

Car finance agreements don’t tend to include insurance as standard, but there are packages available that do.

Don’t worry if you can’t remember who your car finance is with. You can find out by checking your paperwork, looking at who you make your payment to through your bank, or calling the dealership you bought your car from.

Car finance agreements can be a great option for a wide range of people. Before committing to a deal though, it’s always important to read the terms carefully and consider the pros and cons.

In most cases, car finance providers pay for or provide your vehicle after you pay a deposit. Then, over the course of an agreed repayment period, you’ll pay off some or all of the price. The product you choose will decide what happens at the end of the agreement – but common options include taking ownership of the car, handing it back, or upgrading it.

A guarantor car loan is an agreement in which a third party (usually a family member or friend) agrees to guarantee the repayment of your loan if you fail to keep up with your payments.

When you’re applying for finance for a used car, it’s useful to have the relevant supporting documents such as information on your vehicle of choice, your financial details and proof of address and income. You may also need a deposit.

The number of years banks will finance a used car for depends on the particular agreement you enter into. Usually, agreements are available for terms of between 12 and 60 months.

Lying on a car loan application is a form of fraud and is illegal. If you’re found to have done this, you could face prosecution and you may find it harder to get credit in the future.