> Car Loan - UK Guide
In a nutshell
A loan taken out for the specific purpose of buying a car
Best Loan for
Consumers wishing to buy a car or other vehicle.
This will depend on the lender you choose and the product choices they have on offer. Lenders will look at your income and your outgoings and will probably credit check you before they agree a loan amount with you. Most people are able to raise the finance they need for a car purchase via a standard personal loan package in which case the standard borrowing rules of your lender will apply. You may find that some lenders will cap the loan they are prepared to give for a car loan (usually at £25,000+) so you may need to shop around if you want to spend more.
This will vary according to the type of loan you use to finance your car/vehicle purchase and the lender you choose. This can be anything between 1-25 years.
Car loans are usually standard personal loan products and as such are extremely easy to organise. The big advantage to taking out a specific loan here is that you won't be taking out dealer finance - which would cost you much more for the same money. Car loan interest rates are much lower than those given by dealer finance. A general car loan also won't give you any purchasing restrictions and won't specify that you have to buy from a particular place so you can shop around for the best car bargain you can find. Sometimes, if you buy from a dealer you may be limited in what you can actually buy and where you can buy it from - which isn't always the most cost-effective route.
What to look out for
If you take out a secured car loan to take advantage of lower rates, then you need to be aware of your obligations here. You will potentially be using your home (or indeed your car) as security for your borrowings - so, if you stop making repayments, then your lender can use it to recover their money. In the worst instance this could see your home repossessed. You can help avoid this by taking out repayment protection policies which will be added to your monthly premium payment. This will, of course, add to your overall costs. You may find that some lenders will impose some limits on what you can do with a car loan. This type of specialist loan does have to be used for the purpose that you originally specified so you may lose some flexibility. Another thing to look out for is being charged fees to arrange your car loan - these aren't necessary, but some lenders will try to charge them anyway. It's generally very important to read the small print of any loan - if at all possible try to choose a lender that will be flexible if you want to pay off your loan early (i.e. they won't charge you a penalty payment to do so). Payment holidays can also be an added bonus.
You can take out a general personal loan as an alternative.