Buying a car is an exciting prospect but often requires a substantial financial outlay that a lot of us don’t have. When it comes to car finance knowing which route to take can be pretty confusing. A quick search on Google brings up all sorts of results from brokers to some very niche lenders who aren’t placed to offer loans to the majority of UK consumers. This page aims to make working out how to finance your car a much more pleasant experience, allowing you to assess your options and Choose Wisely.
Types of car finance
When looking to purchase a car there are a number of different finance options available - which I've outlined below. The comparison table featured on this page focuses purely on car loans. A car loan is an independently sourced personal loan which, not surprisingly, is used to finance a car.
Find a reputable dealer and they’ll agree finance on your behalf with repayment periods from 1-5 years. The catch - you only own the car once you’ve made your final payment. Positives? Competitive interest rates and added protection are available.
Personal contract purchase
Similar to Hire-Purchase, but you defer part of the loan until the end of the term, normally for between 1 and 3 years. Once the loan term is finished you’ve got a choice to pay off the deferred amount and keep the car, hand the car back to the dealer and walk away or trade the car in for another and start the process again. Positives? Competitive interest rates, lower monthly repayments and you’ve got a choice at the end. The catch - the value of your car will depreciate so the choices you have at the end of the term may not be that attractive.
Personal Leasing/Personal Contract Hire
Find a car at a dealer and agree on a fixed amount to rent the car over a certain period. Dealer sources the finance and you make repayments directly to the finance company. At the end of the agreement, you give the car back to the dealer or the finance company with no option to purchase. Positives? Fixed cost motoring, you also won’t lose out due to vehicle depreciation. The catch - you’ll never own the car.
Pricing and things to watch out for
The lenders featured in the comparison table above are all unique and offer rates ranging from 3.4% up to 45.7%. You can borrow between £1,000 - £25,000 and you can expect to repay over a period of 1-5 years. Some of these lenders will require you to choose the car from one of their approved dealerships and with strict limitations on the age of the car.
Criteria will vary between lenders. As a minimum, you’ll have to be at least 18 years old and have a UK bank account with direct debit facilities. As with all types of personal loan, you’ll need to be able to convince the lender that you're comfortably able to afford the repayments.
What not to do
The lowest rates in this table are offered by the banks and supermarkets , these are reserved solely for those with a perfect credit history . If your credit score is less than perfect then applying with these lenders is likely to result in you being declined, further harming your credit file and making it increasingly difficult to get accepted for the best rates in the future. If you don’t know your credit score you can easily find out for free by visiting sites such as Clearscore or Noddle. If you do have bad credit there are suitable lenders in this table for you to compare but it's worth checking out our comparison table specifically for bad credit loans .
There are a number of options to consider when buying a car, each suited to a very specific set of circumstances. Before committing to a certain type of car finance it's key to fully understand what’s available, you can then assess and work out your best option. When it comes to car loans the same applies, rates vary across the market so be savvy. Remember the best rates are reserved for those with