If you're looking to upgrade to your dream car but need to borrow a little extra, we explain your options.
A new car can be an expensive purchase, with finance plans offered by car dealers often charging extortionate rates of interest.
However, financing the purchase of a new car with cheap car loans from an independent car loan specialist can enable you to upgrade your vehicle affordably.
Specialist car loan providers can ususally offer the best car loan rates with repayments spread over a term of your choice, although they aren't your only option.
There are two main types of loans which can be used to purchase a new car:
Regular personal loans
A standard personal loan where you simply choose to spend the borrowed funds on a new car is one, their major positive being the ability to borrow high amounts.
The majority of companies offering regular secured or unsecured personal loans will be willing to lend funds to contribute towards the purchase of a new car.
If the loan is secured on your property, you may be able to get lower interest rates or borrow more. However this should only be an option if you are certain you’ll be able to keep up with repayments.
Specialist car loans
With specialist car loans the loan amount is secured against the car rather than your house. If you fall behind on your repayments, the provider can repossess the car to recover their investment.
Specially tailored car loans are often accompanied by a degree of repayment flexibility and other features beneficial to the purchase of a car, including:
The ability to defer repayments (giving the option of lower initial payments followed by a lump sum payment at the end of the loan term)
- Cashback on the vehicle
- Direct payment to the car dealer
- Enhancements such as vehicle checks or breakdown service membership
It is important to compare car loans to see what is on offer. The best loans for cars are usually a combination of the lowest interest rates and the most useful included benefits.
What will the repayments be?
Whether you choose a specialist car loan or a regular personal loan the monthly repayments will be based on the total loan amount (plus interest) spread evenly over the loan term.
The interest rate applied will be dependent on a number of things, including your credit history, the amount borrowed and the loan term – and for specialist car loans may depend on the vehicle being purchased.
The cheapest car loans are usually secured on either the car or property, as this protects the provider’s investment, although this isn’t always the case so make sure to compare all your options.
Restrictions and conditions
The majority of car loan specialists do not place restrictions on the type of car purchasable with the loan funds.
However, some providers specify that you are only eligible for a car loan or their best rates if you agree to purchase the car from a particular source, i.e. approved car dealers.
Insurers’ best loan rates are usually only available on loans of a specific value (i.e. between £1,000 and £2,000) – so make sure you compare headline APR conditions to ensure you can get them.
Always check whether Payment Protection Insurance (PPI) or Gap Insurance is included in the loan, and consider carefully whether you need it: take a look at our guide, Do You Really Need Payment Protection Insurance?
If you compare the features and monthly repayments of a number of loans, and check whether there are any arrangement fees imposed, you should be able to find the cheapest car loans for your needs.
Generally the best car loans will be an amount sufficient to purchase your new vehicle, with repayments and flexibility that suit your lifestyle.