Want to own a car but need help with the upfront cost? A car loan may make it easier to buy the vehicle you’re after – whether it’s a sporty soft-top, a family estate car or a well-loved old car. Read on to learn how car loans work and how to find a cheap one.
A car loan is typically a personal loan (also called an ‘unsecured loan’). Personal loans can be used to spread the cost of most big purchases. But because they’re often used to buy a car, you’ll sometimes see them called ‘car loans’.
A car loan lets you borrow a lump sum of money to buy a vehicle. It may cover some or all the cost, depending on how much you borrow and the price of the car. You’ll make monthly payments to repay the car loan plus interest and any fees.
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Car loans typically start at £1,000. Many providers offer up to £25,000 although some may go up to around £50,000. If you need to borrow a large amount, you may want to consider car finance as an alternative.
Getting accepted for the biggest car loans often requires a good credit score and a higher income. Experian makes your search easier by showing you car loans you’re eligible for.
Remember, fitting car loan payments into your monthly budget shouldn’t be a squeeze. Only borrow what you can comfortably afford. Missing a car loan payment will lower your credit score and may lead to fines, a default and even legal action.
Compare car loans from across the UK market with Experian. Searching is free, takes a few minutes and will never affect your credit score. Also, we’ll calculate your chances of approval using your unique data so you can apply with confidence.
The price tag of a car loan depends on several things, including the Annual Percentage Rate (APR) and the number of months you pay interest for.
Hunting for the cheapest car loan? Here are some tips to consider:
The average APR for a car loan will depend on what deals are available at the time so it’s worth shopping around. Personal loans are often the cheapest way to borrow money to buy a car if you have a good credit rating and can get access to the best deals.
Yes. Car loans are one way to spread the cost of a vehicle, but there are several alternatives. Below are three different types of car finance you may want to consider.
When it comes to the pros and cons of a car loan compared to car finance, it really depends on what you want.
One of the main differences is that a car loan lets you own the vehicle from the start of the agreement. This means you call the shots when it comes to your car. Your provider can’t restrict your mileage, stop you from making modifications or repossess the car without a court order. Also, you have the freedom to buy the vehicle from any dealer or private seller.
Prefer not to commit to car ownership? A PCP or car leasing agreement may be more suitable for you. You’ll have sole use of the car but the freedom to return or exchange it at the end of the agreement.
If car ownership is your goal, you may find it easier to borrow a larger amount with a HP agreement. This is because, unlike a car loan, a HP agreement uses your car as security and requires you to put down a deposit of around 10%.
Below is a summary of some important differences between car loans and car finance.
| Car loans | Hire Purchase | PCP | |
|---|---|---|---|
| Do I own the car outright at the start of the agreement? | |||
| Can I buy the car from a private seller? | |||
| Do I have to pay a deposit? | |||
| Can the provider repossess the car without a court order? | |||
| Can I return the car at the end of the agreement? | |||
| Are there any mileage restrictions? |
Yes. When you apply for a car loan, the provider will calculate your credit score to help them decide whether to lend to you. Each lender has their own way of doing this. Most use information from your credit report, your credit application, and their own records if you’ve been a customer before. Get an idea of how lenders see you by checking your free Experian Credit Score.
Car ownership is a big undertaking. Here are some important things to consider before buying a car with a car loan.
Yes. Because car loans are typically unsecured, you can usually make overpayments up to £8,000 within 12 months without having to pay a penalty fee. Paying your loan off early may help you save money on interest.
Ask your lender for an early settlement figure to find out: