Security For Security advice and info please click here : How to stay safe Close
Back Icon Back to previous page

Advice

First published: 23rd April 2015

Contributors

Words by:

Advice

Using a personal loan to buy a new car

Is a loan the best way for you to buy a new car?

First published: 23rd April 2015
You can take a loan from a bank or building society. Buying this way means you own the car from the start and, unlike dealer finance, it’s not linked to your choice of car.
Pros:
  • It separates the finance package from the car you buy, meaning that you can sell it on at any time
  • For the same reason, you can choose any car you want
  • There’s huge choice among high-street and online lenders, meaning you can shop around and get a better interest rate
  • You can choose how long the repayments last – generally anything from two to 10 years
  • If the loan is secured against another asset, you won’t lose the car if you don’t keep up repayments
Cons:
  • Once you’ve sold the car, you still have to keep paying off the finance owed on it – the residual value of the car is unlikely to cover it
  • There can be a delay in lenders transferring money to your account
  • If you don't keep up your repayments, your home and possessions could be at risk
What is a personal loan?
With a personal loan, you can shop around high street banks, building societies and other lenders to choose the best interest rates and terms. You arrange the loan with the lender, who transfers the money to your account before you pay the dealer. Such an arrangement also gives you much greater flexibility to shop around to find exactly the right car.

You – rather than a finance company, as with some other forms of finance – own the car from the outset meaning that you can sell on the car at any time. However, you’ll still have to pay off the loan and you run the risk that the price you get for your car won’t cover what you owe – particularly in the early days of the loan.

What’s more, because the loan is not secured against the car, if you get into financial difficulties, you can’t simply return the car.
Top Tips
  • There are a lot of lenders offering personal loans – so make sure you shop around and compare interest rates, any associated and, above all, the total amount you’ll have to repay.
  • Your credit record and personal circumstances may affect the rate the lender will offer you.
  • Your record and circumstances will affect the rate a lender offers, so you may not get the advertised (low) rate
Related topics: New car finance