Understanding car loans and financeThere are many types of finance available to help you buy a new car. Find out which one is right for your budget.

Unsecured Personal Loans

This is a loan which is based on your ability to make monthly repayments. No assets, such as your house or car, are used as security for the loan
• The monthly repayments and loan length (term) are fixed
• A car bought with an unsecured personal loan is owned outright by you and can be sold at any time, but the repayments will continue regardless of whether you still own the car
• Most unsecured personal loans cannot be repaid early without incurring a penalty payment
• If you choose a flexible loan it may allow you to take a break in repayments or to repay the loan early, free of charge
• Choosing a deferred loan may permit lower monthly payments, but with one large payment at the end of the loan contract

How Auto Trader can help: Car Loans and Finance

Secured Loans

You can secure a loan against assets such as your home, which allows larger amounts to be borrowed over a longer period.
• It’s possible to borrow more money than with an unsecured personal loan
• Longer term loans are offered
• Lower monthly repayments than equivalent unsecured personal loans are usually available
• If you cannot make repayments, the assets used to secure the loan can be repossessed

Personal Contract Purchase (PCP)

A PCP allows you to pay a deposit and lease a car for a fixed time with lower monthly repayments.

An example PCP plan for a £20,000 car could be:
• A large deposit     £6,000
• Monthly payments     36x £250 (totaling £9,000)
• A final payment     £5,000

The final payment – sometimes known as a balloon payment – is calculated at the beginning of the agreement and is based on the predicted future value of your car taking into account a set mileage. At the end of the agreement, there are three options:
• Pay the balloon payment and keep the car
• Hand the car back and walk away from the deal
• Use the guaranteed value as a deposit for your next car

Remember:

• PCP payments are usually lower than Hire Purchase (HP) payments
• You don’t fully own the car until the balloon payment is made
• You can’t sell the car until the balloon payment is made
• Going over the set mileage will incur an extra cost
• Some PCP contracts can include maintenance of the car

Hire Purchase (HP)

Many dealers will offer you Hire Purchase to buy your car over a set period, with fixed monthly payments.
• An initial deposit may be required
• A bigger deposit reduces monthly repayments
• You only own the car when the last payment has been made
• You must settle the finance debt before selling the car

Shop around

Whatever type of finance you’re offered, always shop around and haggle hard.
• Use internet loan search engines to find the most competitive deal
• Know your best deal before going to a dealer – they may not be able to match the offer
• Haggle with dealers to get the finance repayments down – taking out finance with a dealer can mean a bigger discount on the car
• Adding the cost of the car to your mortgage at a lower interest rate sounds appealing, but you could end up paying more in the long run, and will almost certainly be paying for your car long after you’ve sold it

How Auto Trader can help: Car Loans and Finance

Essentials

The most important thing to check before agreeing to any loan is the total amount you will pay over the loan period.
• Study the Annual Percentage Rate (APR) – the lower the rate, the less you’ll pay in interest
• Understand additional payments such as setup fees or early repayment charges
• Compare the total amount you’ll pay back – a lower APR over a longer period may sound appealing, but it could cost more in the long run
• Work out if you need Payment Protection Insurance (PPI) – many lenders will offer it, but it can be cheaper to arrange it through a standalone provider