Car Finance Loans

How to choose a car finance loan...

The demand and need for a car is ever increasing, so, however, is the cost of purchasing one, a cost that is out of reach for the vast majority of buyers.

Fortunately, there are plenty of finance options readily available, to help afford the massive costs of a car purchase.

These loans are good for:

Various financial situations
These loans are available to a wide range of applicants from a variety of different financial backgrounds.

Good credit history
If you are looking to purchase a car and have a good financial history it will be worth considering taking out a standard, unsecured loan. See our unsecured personal loan section.

• You will get lower rates of interest
• No restrictions imposed on which cars you can buy
• The loan won't be secured against the vehicle you purchase.

Poor credit history
If you have poor credit history then it will be best to consider one of the many car loans from a car loan specialist. The types available include:

Hire Purchase:
You will be required to make monthly payments towards the cost of the car and will only officially own the car when this debt is fully repaid.

Pros

• You will effectively own the car
• You will have a regimented payment plan that will be easier to budget for and stick to
• Better rates of interest are available if you can pay some of the cost upfront

Cons

• The car can be repossessed if you fail to meet repayments
• Interest rates can be high if you cannot afford to pay any money towards the car upfront

Personal Contract Purchase:
These loans offer fixed term monthly repayments, but with a large ‘balloon payment’ at the end of the loan term.

Pros

• Your monthly repayments will be lower
• You have more options at the end of the loan term (return the car, pay the balloon payment to purchase the car, trade the car in)

Cons

• You will have to budget for the large payment at the end of the loan term
• You will secure no ownership over the car if you cannot afford to pay the 'balloon payment'.

Lease Hire:
Like a hire purchase, but with a balloon payment at the end. The emphasis of these loans is to reduce your monthly payments, with less stress placed on paying for ownership at the end of the loan term.

These loans are unsuitable for:

Those who are easily influenced by slick salespeople and dazzled by shiny cars in the showroom should be careful to stick to their budget, rigidly.

It's all too easy to go to the dealer with a Ford Fiesta in mind and come back with a BMW. It may seem tempting at the time, but will feel far less fun to drive when you have to make massive monthly repayments.

Don't be afraid to go away and think about things, never be pressured into making such a large purchase without being 100% sure it's what you want.

Look for:

The best deal
Before you go ahead and sign yourself into a contract, make sure you are getting the best deal possible for your personal financial position. Look at the different car loans available to you:

• Hire Purchase
• Personal Contract Purchase
• Lease Hire
• Unsecured car loan (reliant on good credit rating)

ChooseMoney recommends comparing at least 3 companies before you make a final decision.

Watch out for:

Restrictions on the car you purchase
The lender you borrow from may stipulate that the car is under a certain age, mileage, or insist that you choose a car from a specific dealership. This can all be very frustrating if there is a particular car you are after that doesn't meet the criteria.

If you are unsure of what you want, try to find a lender that offers a wide variety of options for your car choice - this is likely to be more helpful if you take out a Personal Contract Loan, with the intention of trading the car for a new model in a few years time.

Don't forget:

Loan protection insurance
If you want to safeguard yourself against the unknown and unpredictability of the future, you may wish to consider loan protection insurance; this will cover your repayments should you be unable to pay them due to accident, sickness or unemployment.

To budget for 'balloon payments'
If you have signed up to a Personal Contract Purchase or Lease Hire, your monthly repayments will be lower, but you will be faced with a large lump sum to settle at the end of the term should you wish to purchase the car.

If purchasing the car is your intention, ensure that you are putting aside some extra money each month to help cover the large sum of money that you will owe at the end, or you may find that you simply have to return the car!

Compare car finance loans