Car Loans

If you are thinking of buying a new car and need a loan to help pay for it then it’s worth shopping around for the best deal.Spend some time looking into the key benefits and disadvantages of each loan so you are completely aware of the total amount repayable and don’t end up paying over the odds for something you could get cheaper elsewhere.

What are the available options?
YourHomeBills.com has put together a short guide on the finance options available to you when purchasing a new car:

(i) Unsecured loans
Unsecured loans are a means of borrowing money without the associated risk of your personal assets being repossessed if you are unable to keep up the repayments. They are typically offered to people on a short term basis and are popularly used to finance home improvement, holidays or car purchases.

The idea of an unsecured loan is to borrow money and repay it over a short period of time. You won’t be able to borrow a large amount of money and the maximum amount lenders are allowed to provide is £25,000. The benefit to you is that the debt won’t be hanging around for that long and usually you can expect a repayment period of around 3 to 5 years.

Choosing the cheapest loan could save you hundreds of pounds in interest charges so it’s worth comparing all the available options.

Use the YourHomeBills.com loans calculator to help find the right loan for you and your circumstances.

(ii) Secured loans
A secured or homeowner loan requires you to use your property as security against the value of the loan. This reduces the lender's risk when lending to you but means you must not default on monthly payments otherwise your house is at risk. If you choose a secured loan then the amount you are able to borrow will depend on your individual circumstances, the value of your property and your ability to make repayments. The lender will then calculate the amount that can be borrowed, the term of the loan and also the Annual Percentage Rate (APR).

A secured loan will allow you to borrow a higher amount and choose to repay the debt over a longer period than a unsecured loan. Even those excluded from unsecured loan may find that a secured loan is available to them, such as self-employed individuals, those who have recently changed employer or those with a bad credit history.

Use the YourHomeBills.com loans calculator to help find the right loan for you and your circumstances.

Fixed and variable rates
If you’re looking for a low cost loan to purchase a new car then you're best to look at those loans which offer a fixed rate. This will ensure that you're interest payments remain fixed regardless of any fluctuations in the Bank of England base rate.

Zero per cent finance
Many car dealerships offer zero percent finance options on cars, whereby you pay a deposit and then subsequent monthly instalments.

The deposit that you pay removes the need for the dealership to charge any further interest on the loan and you car will cost you a lot less than on some other finance options.But beware - the deposit can be more than 30% of the overall loan value and you may only get to choose from a particular selection of cars rather than the one that you want. You might also not get the ‘0%’ you had hoped for so it’s worth shopping around for the cheapest finance option.

Use the YourHomeBills.com loans calculator to help find the right loan for you and your circumstances.

Dealership Finance
If you want to organise a loan to pay for your car quickly then you can usually do this at the car dealership. But before you choose to get a loan from your car dealership, you may find that an alternative financing option saves you more money. Be careful not to make an on-the-spot decision otherwise you may end up forking out a lot more than necessary.

The agreement will typically be presented to you by highlighting the total monthly payment amount, but you should find out the APR so that you can compare this against other forms of loan to see if you can get a cheaper deal. Sometimes the dealer may also provide a discount for taking the finance through them, but be aware that this can sometimes lead to you being charged a higher overall rate of interest which will end up costing you more money.

Specialist Car Financing Companies
Some finance companies now specialise in offering loans to people that are looking to purchase cars, but who have a poor credit history. As there is a greater risk of their clients failing to make payments, these car loans usually carry a much higher rate of interest and are secured against the car.

These types of loan are a solution for people where owning a car is a necessity and helps when the person doesn’t own their own house or doesn’t want to risk losing it. Unfortunately the lender will typically restrict the owner to a particular selection of cars and the risk is that person faces losing the vehicle if they fail to keep up repayments.

Use the YourHomeBills.com loans calculator to help find the right loan for you and your circumstances.

How do I choose the right car loan for me?
Choosing the most appropriate car loan requires you to do some homework. Don’t commit to taking out a car loan if you can’t afford to keep up the repayments amongst any other commitments you might have. Be sure to compare all of the available loan options by looking at the APR and calculating the total amount that you will be repaying.

Use the YourHomeBills.com loans calculator to help find the right loan for you and your circumstances.