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• Should I use a secured or unsecured loan to purchase a car?
If you purchase the car through a dealership they will often offer you a monthly repayment plan, known as a Hire Purchase Agreement. You agree to pay in installments, but you only own the car once the final installment has been paid. Until then the company you bought it off technically owns it.

You can of course take on the debt yourself with a secured or unsecured loan. If you are going to buy an expensive car, in excess of £30,000 or so, a secured loan may be your only option as few lenders will take the risk of offering you an unsecured loan. You can normally expect to pay interest of around 6.5 per cent to 8.9 per cent on a secured loan.

Unsecured loans only realistically go as high as £20,000, but you can get yourself a nice motor for that kind of cash! Rates start at around 6.2 per cent, which means on a loan of £15k over five years you’ll be paying £291.39 a month.

• How much can I borrow?
Only borrow what you can afford. Consider whether your current incomes are sufficient to cover any debt you might take on - you have to ask yourself how the debt is going to affect your disposable income and whether you will have enough cash to live on every month. Remember to take into account your current debts and also any savings schemes you are currently paying into when making these decisions.

• How long should I take a loan out for?
The answer to this is not immediately obvious; it’s a question of getting the best value for money. Shop around and think about the terms of the loan. If you take on the loan for a long period then in most cases your monthly repayments will be small but you will ultimately end up paying more as the debt won’t shrink rapidly. If you take on a short term loan then you’ll probably pay a high monthly rate of repayment but will clear the debt quickly. You need to find a happy medium for yourself.

• How do I get a competitive deal?
Auto Trader in association with MoneyExpert compares over 400 personal loans online and over 90 per cent of Secured/Homeowner loans!! Click here to search the whole market and find a deal that suits you best.

• What happens if I’m ill and can’t work or if I’m made redundant?
Payment Protection Insurance is a form of insurance which protects your commitments to debts should you have a sudden loss of income due to illness or disability. If you find yourself unable to work then the insurer will commit to pay your debts. Most policies differ so it is important to read the terms and conditions carefully. The terms of the insurance will usually specify how long they are willing to pay the debts for and also and if they will not commit to paying 100 per cent of the debt then what percentage they will commit to paying.

• What is credit scoring?
When you apply for a loan, the lender will look to build a credit score around your application to decide whether or not you are a reliable borrower. They will examine your current and past credit commitments and how well you have met them before deciding whether to give you the money.

• What is a credit pass mark?
Before a lender gives you any money they will examine your credit score and from this score they will derive a number which represents an acceptable risk for them to take on. If your score meets or exceeds this number then you should get the money.

• I’ve been turned down for a loan - what should I do?
If you have been turned down for a loan the most important thing to do is to resist the temptation to go out straight away and apply for half a dozen extra loans. This will show up on your credit report and it could make you look desperate to potential lenders. Instead take time to find out why you’ve been rejected. It could be that your credit report contains errors which you are entitled to amend. Alternatively wait until you are promoted or take a better job before re-applying.

• How can I see my credit report?
In order to get hold of a copy of your credit report you need to contact one of the credit agencies who compile them. The major agencies are Equifax, Experian, Equilend and Call Credit. You can normally get one copy for free.

• What can I do if the information on my credit report isn’t accurate?
Check that all the various information is accurate and if you spot mistakes be sure to report them to the agency. Maintaining the accuracy of your report can be particularly important if you have had serious financial difficulties in the past such as voluntary agreements or a bankruptcy. As soon as you meet the terms of these agreements ensure that you send the documents to all the relevant people including the credit agency.

• Are there any charges not included in APR?
The APR is the average interest rate built up over the whole term of the loan, so borrowers can compare loans. It takes into account the interest, any insurance and fees. You may be hit with a fee if you choose to repay your loan early, however. This won’t be included in the APR but you’ll be made aware of what this is (usually one month’s repayment) in the terms and conditions.

• What are the loan conditions?
Loan terms and conditions will vary so be sure to read them all carefully. The most important thing to check is the cost of the deal. If the interest rate is high you could consider alternative ways to finance the deal, so don’t jump in.

If you’ve signed up to a personal contract hire, you’ll agree a monthly rental cost with various terms and conditions, such as total miles travelled, car maintenance and servicing. If you’ve sign up to a PCP, watch out for the Minimum Guaranteed Final Value - this is what your car is worth when a PCP contract ends, as long you haven’t exceeded any set mileage limits. If all’s well, that’s how much you’ll pay to buy the car at the end of the contract.

• What should I check when signing a credit agreement?
See above

• I’m having trouble keeping up with my repayments…What should I do?
You should take stock and try and work out why you can’t afford them. Are you spending extravagantly elsewhere? Could you budget better? If you’re really struggling the best thing to do is tell your creditors. Burying your head in the sand is likely to make matters worse. If you default on a payment you’ll have to pay a fee and things can easily spiral out of control. If you are still struggling, consult the Citizens Advice Bureau or try Credit Action.

• Do I have to buy PPI?
The short answer is no!  PPI can be expensive and there is some criticism of it. However the major criticism is the cost, not the concept. You don’t have to buy PPI through your loan provider so if you shop around you could find a better value deal. If you’re keen to protect yourself don’t be put off by the scaremongering – just be careful.

• If my car’s purchased by PCP, HP or PCH... What should I do if the car is faulty?
Report the fault to the dealer and get them to rectify the fault. Meanwhile keep paying the instalments, otherwise you’ll default on the credit agreement and the car may be repossessed.

• How can I cancel a credit agreement?
Most credit agreements can be cancelled provided you act quickly. There will normally be a cooling off period of a couple of weeks in which you will have the opportunity to think about the conditions of the loan. You lose this right if you sign the documents on the dealer’s premises however. The agreement can be legally terminated at any time, if you are not the owner of the car until the last payment is made (as is the case with Conditional Sale and Hire Purchase agreements). Provided you have paid half the credit price of the car, you can simply hand it back.

However, you will lose all the payments you have made to date, and will be liable for further charges if the condition of the car is poor. If you haven't paid half of the credit price of the car, you will lose the car and still be liable for any outstanding payments. Generally, this is the worst case scenario of a credit agreement.

• Is there a cooling off period with credit agreements?
There will normally be a cooling off period of a couple of weeks in which you will have the opportunity to think about the conditions of the loan. You lose this right if you sign the documents on the dealer’s premises however.

• If I settle early will there be any consequences?
One of the most important hidden charges with any loan is the early redemption penalty. It sounds scary but in plain English it means you’ll get hit with a fee if you decide to pay off a loan or mortgage early, or to move your borrowing to a different product or provider. If you can find a provider that won’t charge then great, but the majority will so you’ll need to be flexible.

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