A personal car loan can be a great way to access the funds you need to buy a car.
With cars costing anywhere from around £10,000 right up to £35,000+, finding the money to pay for such a big purchase outright can be a challenge. A personal loan allows you to spread the cost of your car over fixed-rate monthly instalments, making it a bit more manageable.
What’s more, when you take out an unsecured loan you won’t be required to put up any collateral up front. And you won’t need to worry about paying a hefty fee at the end of your contract to become the legal owner of your vehicle either. Your dream car really is yours from the moment you put it into gear.
In this article, we’ll share everything you need to know about using a personal loan to buy a car, from how personal car loans work to what you’ll need to apply.
What is a personal car loan?
A car loan is essentially a personal loan, which can be used to purchase a vehicle of your choice. Simply borrow the money you need and pay it back (plus interest) monthly. As repayments are made over a fixed term and with a fixed rate of interest, your monthly payments will stay the same and you’ll know exactly how much you’ll need to pay back in total. No surprises.
You can use a car loan calculator to get an idea of the amount of money you want to borrow and over how long, which will impact how much interest you pay back.
The top three benefits of a personal car loan are:
- Personal loans typically have a cheaper APR Representative than car finance deals
- You’re not restricted on the type of car you can buy, and where you can buy it from
- The car’s yours from the moment you buy it which gives you greater flexibility
We share even more benefits of personal car loans later in this article.
How much can I borrow?
Our personal loans for cars are best suited to those who want to borrow between £1,000 and £35,000 with a repayment term between two and seven years.
Is a car loan unsecured?
As car loans are a type of unsecured lending you won’t need to put up any collateral, such as your car. Instead, your loan application will be assessed based on your credit history, personal circumstances, loan amount and term.
How does a personal car loan work?
A personal car loan makes buying your new car simple. Apply for the money you need and, once your application is accepted and completed, you’ll receive the funds and start making your fixed-rate monthly repayments until the loan is settled.
No deposits, no variable interest, no balloon payments to worry about… just simple, fixed-rate repayments spread over your chosen number of months.
The advantages of a personal car loan
At this point, you might be wondering why you should get a personal loan rather than seeking out car finance or leasing a new car. Here are just some of the advantages of a car loan:
- Get the money you need deposited straight into your bank account (usually within two working days), giving you complete flexibility
- As you’ll be effectively a cash buyer, you could negotiate a better deal on your car
- Avoid inflated APR rates set by the dealership
- Choose any car you want (within the budget of your loan)
- Buy from anywhere, from private sellers to dealerships
- Hit the open road whenever you want as there’s no restrictions on mileage or usage
- No need to upfront a deposit or worry about finding the cash for a balloon payment at the end of your contract
- If scuffs and scrapes don’t bother you (and they’re not impacting the safety of your car), you won’t need to worry about repairing them to avoid additional end-of-contract charges
- Keep your car for as long as you like…
- …Or swap it for a new one without penalty charges
- Enjoy simple, transparent pricing. The total amount payable and the repayment term are agreed upfront, so you’ll know exactly what you need to pay back and when
Is car finance a personal loan?
No, a personal loan and car finance are not the same. Car finance is usually offered by a car dealership, whereas a car loan is offered by a lender such as Novuna Personal Finance.
- Car finance (Hire Purchase and Personal Contract Purchase) gives you the option to pay for your car in monthly instalments. It is subject to a deposit and you won’t own the car until the end of your contract (once you’ve made the final payment or balloon payment, depending on your finance agreement)
- Car loans give you the amount you need upfront, so you can buy the car outright and spread the cost in a more affordable way
A car loan can often be cheaper than car finance, as personal loans typically have a cheaper representative APR than car finance deals and may also allow a longer repayment period.
For example, we offer low-rate car loans with rates starting from 7.4% APR Representative on loans between £7,500 and £25,000. While the majority of successful applicants are offered that rate, the interest rate you get will depend on your credit score and personal circumstances.
How do I apply for a personal loan to buy a car?
Here are the key stages of a personal car loan:
- Choose the amount you need to borrow and over how long (both will impact how much interest you pay overall)
- Make sure you meet your lender’s eligibility criteria. In our case, you must:
- Be aged 21 or over
- Be in permanent employment, self-employed or retired with a pension
- Be a permanent UK resident, and have been living in the UK for at least 3 years
- Have a bank or building society account
- Have a good credit history
- Fill out an online application form, which should only take a few minutes
- If accepted, read and sign your credit agreement
- Expect the funds to arrive in your account in just two working days
- With the money in your bank, you can start your search for your dream car
- Use your loan to pay for your car outright, and make your monthly repayments until your loan is settled
What happens if I can’t afford my car loan repayments?
We understand that sometimes financial situations change. If you’re unable make your monthly repayments, it’s important to contact us straight away. Let us know about your current circumstances and our friendly customer service team will be able to advise on the most suitable solution.
If you’re still not able to repay after speaking to us, there is also the option to sell your car and use the money to pay the loan back early. At Novuna Personal Finance, if you decide you want or need to pay back your loan earlier than planned, we won’t charge you more than your agreement. Of course, we hope it won’t come to this and our team will try to work with you to find a solution.
Do I need good credit to get a personal loan for my car?
Having and maintaining a good credit rating is crucial when it comes to borrowing. Not only will it show potential lenders that you’re reliable when it comes repaying what you owe, but you’re also more likely to get a competitive interest rate if your credit rating is good.
When applying for a loan, reputable lenders will look at your credit history to help them make a decision on your application. They will use this information to assess whether they believe you’ll be a good customer, based on how you’ve managed debt in the past.
It’s therefore very important to keep an eye on your credit record and try to improve your credit score. This will give you the best possible chance of having your car loan application accepted.
How can I apply for a car loan?
Complete our quick and simple online application form in minutes. With Novuna Personal Finance, you can borrow from £1,000 to £35,000 with rates from as low as 7.4% APR Representative (£7,500-£25,000).