Car Finance

Need a car loan? Here’s our guide to car loans and the best car finance options. Compare car loans to make sure you get the best deal to help you afford your new set of wheels

SECURED LOANS: YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE, LOAN OR ANY OTHER DEBT SECURED ON IT.

We compare loans that can be paid back over terms of between 1 and 25 years. The APR interest rate you’ll be charged depends on your personal circumstances, and will be between 3.2% and 99.9%

This is a representative example of what it may cost: a Loan of £7,500 over 60 months at 3.3% APR would equate to monthly repayments of £135.60, and the total cost of the loan that you pay back would be £8,136.22

Car finance deals

Buying a new car – whether it is a brand new model or a secondhand vehicle – is exciting. Arranging the finance deal you need to cover the cost, however, is not.

While many people spend hours comparing and contrasting different makes and models and then haggle hard to get the price down, the number of people who take the time to scour the market for the best car finance deal is much smaller as a result.

However, paying over the odds to borrow the money to pay for a car can easily wipe out any reduction you manage to get on the price paid and make the vehicle cost a lot more overall.

In fact, you could end up paying thousands of pounds over the odds, which is why it’s worth understanding the various options and checking the interest rates and charges available.

What you should consider when buying a car on finance

Before buying a car on finance, it’s important to think about the following factors before signing on the dotted line:

1. Affordability of monthly payments

2. Interest rate and charges associated with your car finance contract

3. Size of upfront deposit required

4. Mileage limits imposed by the provider

It’s also worth checking your credit score before applying for a car finance contract so you have an indication of the likeliness of your application being successful.

The different types of car finance

Hire Purchase plans

Hire purchase (HP) plans typically require you to put down an upfront deposit (though in some cases this can be your existing car) and commit to a set number of monthly instalments.

Once all the instalments have been paid, the car – which you can drive from the start of the agreement – is yours.

If you fall behind with your repayments and have not paid off a third of what you owe, the HP provider has a right to repossess the vehicle. If you’ve paid more than a third of what you owe, the provider must obtain a court order in order to make the repossession.

Once it has been repossessed it will be sold at auction, with the money used to pay off your debt and any accrued costs. If the money raised by the sail is insufficient, you will be liable for the outstanding debt.

But repossession is often seen as a last resort. For example, you will first be sent written notice to give you the chance to pay your arrears.

It is also worth noting that, by law, you will not be able to privately sell the car until you have paid the final instalment.

Personal loans

A low-rate loan is almost always a much better way of paying for a car than a hire purchase agreement. What’s more, you can sell a car to pay off a personal loan should you become unable to keep up with the repayments.

However, the lowest personal loan rates are often limited to loans of between £7,500 and £15,000. So if you were thinking about borrowing £6,000, it may be worth increasing the amount to £7,500 to take advantage of the cheapest interest rates.

If you need to borrow as larger amount, on the other hand, you may find that you can get a lower rate by using your home as security. Just remember that your property will be at risk if you default on the repayments.

Either way, the MoneySupermarket loans channel is a great place to compare hundreds of deals from a wide range of lenders.

0% credit cards

For cheaper second-hand car purchases, a credit card offering 0% for an introductory period could prove the smartest choice.

However, you will need to be disciplined enough to avoid incurring high interest rates at the end of the 0% period.

It is also worth noting that these deals – like the cheapest personal loans – are limited to people with good credit scores.

Leasing/Contract arrangements

A leasing agreement is basically a long-term rental contract where you pay a monthly fee to use a car, often with a hefty deposit up front. There will normally be a strict mileage/usage condition, as well as rules regarding your responsibility for wear and tear and other damage.

This may be referred to in the showroom as a Personal Contract Hire (PCH) agreement. At the end of the agreement, you hand back the car and, if you want to, enter another agreement for a new vehicle.

An alternative is an arrangement called Personal Contract Purchase (PCP). Here, at the end of the agreement, you can either return the vehicle, buy it outright (with the purchase price arrived at via a formula laid down in the original agreement) or use it as part-exchange on a new PCP agreement.

If you return the vehicle and you’re up to date with your payments, there should be nothing else to pay provided the car is in good condition and you haven’t exceeded any mileage stipulations.

Moneysupermarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.