Car loans


Compare Car Loans

If you want to buy a car but do not have enough in your savings to cover it, then you may want to compare car loans to find the right finance deal for you. Although it’s rarely a good idea to borrow money to buy a car unless absolutely necessary, there are a number of options available, which means you should be able to find an option that works for you.

What types of car loan are available?

When you begin to compare car loans, you may notice that you have several choices to make. You will need to decide on the type of loan you want to take out and the provider you want to go with. Here are the main types of car finance deals available, providing you have a strong enough credit record:

Hire Purchase

A hire purchase agreement is usually arranged either by a broker or the car dealership from whom you bought the car. Hire purchase means that you pay a deposit and take the car away to use as if it were your own. However, you then pay off the balance owed over a  number of months until the entire cost is covered. The car is not yours until you have made the final payment.

Once you have covered a third of the cost of the car, the lender can no longer repossess your car. In addition, once you have made half the payments, if you cannot repay the rest, you may be able to return the car and make no further payments. 

Personal Contract Purchase (PCPs)

When you compare car loans, it may appear that PCPs are similar to hire purchase deals. This is true, to some extent, in that you pay an initial deposit and then use the car while paying off the remainder of the value. However, when the repayment term is up you have a choice to make. 

  1. You can return the car and make no further payments
  2. You can make a final, larger, ‘balloon payment’ and keep the car
  3. You can put down a new deposit and start up a fresh PCP for another car

As for hire purchase agreements, it’s vital to consider whether you can afford the repayments for the entire term of the loan to avoid losing your car and damaging your credit score.

Personal Loan

Taking out a personal loan to pay for a new car means that you own the car outright from the offset. However, you may have to repay higher amounts each month than for some of the other dedicated car finance schemes. You will still need to consider whether you will meet the borrowing criteria before applying for a personal loan to buy a car.

Credit card

It can sometimes be possible to pay for a car at a dealership with a credit card. If you are able to secure a 0% interest card, paying on a credit card and repaying the balance before the interest-free period expires can be a good option. Some dealerships won’t accept credit cards as they are keen for you to take out their own car finance deals, however.

How do you compare car loans?

When comparing car loans, it’s important to consider a range of factors:

  • How much do you need to borrow?
  • Do you want to own the car outright?
  • Are you eligible for the loan?
  • Can you afford the repayments?
  • How long do you have to repay the balance?
  • What is the interest rate?
  • Are there other charges and fees?

How do you compare the cost of a car loan?

The best way to compare car loans from a cost point of view is to look at the APR advertised. APR stands for Annual Percentage Rate and shows you how much, as a percentage of the amount borrowed, you will pay each year in interest and other costs. 

It’s worth remembering, though, that if the APR is stated as being ‘representative’ the lender only has to offer this rate to 51% of borrowers, which means you might not be offered that rate if your credit file and financial status aren’t up to scratch.


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