Halifax enters secured car loans arena

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If you are thinking of buying a new (used) car, Halifax is offering an online finance deal with interest rates from 3.6%. The key point here is that the finance is secured against the car, in the same way that a mortgage is secured against the property. So if the borrower doesn't keep up the payments, the security - in this case, the car - can be seized by the lender.

This means the borrower does not own the car until the debt has been repaid. With a traditional unsecured personal loan, the borrower owns the car, and the lender has no claim on it. Using the car as security for the loan means the interest on the loan is charged at a lower rate. It remains to be seen whether Halifax's initiative will trigger similar offers from other banks and building societies, increasing the choice available to would-be car buyers.

What’s the deal?

The new Halifax Car Plan Extra deal gives customers two car finance options. The Fixed Car Plan is a hire purchase agreement, or there’s the Flex Car Plan, which is a personal contract purchase plan. The Fixed Car Plan works like a standard hire purchase agreement, so the motorist pays for the car in fixed monthly instalments over a set period. The customer does not own the car until they have made the final payment, but they can pay off the finance early with no extra fees or charges.

It’s important to remember that the plan is secured against the car, so if you don’t keep up with the payments, the bank could seize the vehicle.

Flexible option

Customers with a Flex Car Plan also pay a fixed amount over a set term, but they enter into a personal contract purchase agreement. At the end of the term, they can either pay off a lump sum to keep the car, or hand it back. The monthly payments for personal contract purchase are lower than for hire purchase but there are usually restrictions on the use of the car, such as annual mileage limits.

Again, the customer can pay off the finance early with no extra fees or charges, and the debt is secured against the car. The interest rates on the plans start from 3.6% on agreements between £3,000 and £60,000.

Who’s it good for?

The Halifax Car Plan Extra is not an ordinary loan. As noted, you don’t borrow money to buy a car outright, as with a personal loan - the finance in this case is secured against the car. Indeed, with a personal loan, there's no obligation to spend the money on a car, or on anything else.

But if you're in the market for a car and are attracted by the affordability of a hire purchase plan or the flexibility of personal contract purchase, the Halifax deals could be tempting. Customers access the Halifax Car Plan Extra via the car finance tab on the bank's website and use the online calculator to view the various options and payments. They then complete the application form online and money is sent directly to the car dealer.

Any catches?

The only people eligible for Halifax Car Plan Extra are Halifax internet banking customers who have held a personal current account for a minimum of three months. At the moment, the finance options are also only available for used cars bought through dealerships. However, the bank expects to roll out the plans to brand new cars in the coming months.  

What’s the verdict?

The Halifax Car Plan Extra offers two types of car finance plan at comparatively low interest rates. However, it’s important to understand the pros and cons of both hire purchase and personal contract purchase agreements before you take up any offer. It’s also a good idea to compare the costs of the car plans with similar arrangements from other lenders - and with a straightforward personal loan.

Top tip

If you use Halifax Car Plan Extra’s online calculator to view your finance options and payments, it won’t leave a credit footprint, so it won’t affect your credit score.

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