Spreading the cost of purchasing your car
In terms of available rates, a personal car loan can be one of the cheapest avenues open to you to purchase yourself a vehicle. Whether a personal loan is the right way for you to finance buying a car is up to you to decide.
The following information outlines the basics of purchasing your vehicle with the aid of a personal car loan and describes just how these loans work.
A personal loan, what exactly is it?
If you’re currently considering the purchase of either a used or new car, you need money to do so and you want to own the vehicle outright by the end of the finance deal, there are a variety of options option to you. For example, you could enter into a hire purchase (HP) deal or you can apply for a personal car loan.
Particularly popular, personal loans can be easily arranged with finance delivered via banks or lenders on the high street offering fair rates of interest. This means that often by the time a buyer arrives at a dealership, their finance for purchasing their car of choice is already in place.
An unsecured personal loan is money you’ve been provided with by a lender which you pay back in fixed instalments over an agreed time period. This money is not offered entirely freely; banks and other lenders want to see a return on their investment. So, as well as repaying the total sum you have borrowed, you’ll also pay interest. To keep your borrowing cost effective, it’s vital that you aim for the lowest possible rate of interest available.
How personal loans work
Once you’ve tracked down the specific vehicle you want to buy, you’ll know just how much you want to borrow from the bank or other type of lender. This figure is based on the vehicle price you want to take out a loan for - with any deposit you might possess in savings subtracted from the total amount.
With a personal car loan, you borrow a set sum and then repay the amount in agreed monthly installments, normally over a term of between one and five years. Interest rates will vary and are dependent on the sum you’re borrowing from the lender and your credit rating.The better your rating is, the lower interest rates you will be offered.
This might be a cost efficient way for many people to purchase a car, but there are certain issues you should be aware of if you’re thinking about taking this approach to vehicle finance. For example, the interest rates indicated are dubbed ‘representative’ APRs. This means that not all of the individuals accepted for that specific loan need to be offered that rate. Many people will pay a higher rate of interest than the advertised representative APR. Also, personal loans aren’t necessarily the cheapest way to access finance. Sometimes, vehicle dealers offer very low or even 0% interest rates as a way of shifting their stock.
Attempt to pay some of the sum by credit card
If it’s possible, you may wish to consider paying a least a portion of the deposit required for your car by credit card. This use of your credit can afford you some strong protection. The provider of your card is held jointly liable along with the car dealer should anything happen to go awry. You will have the powerful asset of Section 75 protection, which can facilitate any issues arising with your purchased vehicle at a point further down the line.
Your finance deal is finished, what happens next?
When many finance deals end, there are additional factors that must be considered. For example, if you take out a hire purchase agreement, the vehicle is not yours outright until you pay an additional “option to purchase fee”, which is usually between £100 to £200 and is decided at the outset before you sign your HP agreement.
With PCPs (Personal Contract Plans) you’ll be asked to pay a balloon payment should you wish to claim ownership of the vehicle you’ve been making repayments for. You will also face the possibility of additional charges if you are giving the car back. These can be incurred for damage caused to the vehicle that is considered beyond typical wear and tear. You could also be charged for exceeding the number of miles you predicted you would cover in the time period of your agreement. These miles are charged at a rate of between seven and 10 pence per mile, meaning you can easily rack up an extra £100 to £200 or more if you over step your agreement.
Unlike these other forms of car finance, once all your repayments have been completed on a personal loan there is nothing left to concern yourself with. The lender will simply mark your loan as settled on your personal credit file and there will be nothing outstanding to pay. This could give you added peace of mind throughout your agreement.