Savvy England
Savvy England
Savvy England

Looking for a Car Loan in July 2018? Full UK Guide, Compare Deals & More!

By Phillip Gray
Founder and Editor
car building society If you’re looking for a new car, you may want to use car finance to pay for it. Sometimes it can be a challenge to find the correct vehicle for your needs, after you’ve found it, you then must consider how you’re going to pay for it.

There’s lots of different ways to purchase cars in England, this includes paying with cash, hire purchase, personal contract purchase, personal contract hire and more!

Of course, this may seem daunting if you’ve never used car finance before, this guide has been created to help UK consumers understand each option. Here you’ll find helpful guides, informative articles, how-to sections, tricks, tips and more.

Remember our team are also updating this section on a regular basis with the latest ‘offers’ and ‘special deals’ from car finance companies across the UK. This means you may find yourself a better deal to suit your needs.

In this section...



Paying for a new Car with Cash


In ‘most’ cases, paying for a new car in cash is normally recommended, firstly you’ll own the vehicle ‘outright’, this can be great should you need to ‘sell’ it at a later date. There’s no chance of ‘missing payments’ or getting into debt difficulties with a loan company.

Remember vehicles bought using a finance agreement such as personal contract hire (PCH) or personal contract purchase (PCP) means you don’t actually ‘own’ the car during the contract, the finance company owns it. This means should you get behind with payments, you may lose the car altogether.

It’s ‘easy said than done’ paying for a car outright, unfortunately most people are not in that position, however there are several saving options available. If you can afford to run your old vehicle for a little bit longer, try and look at saving accounts to help you afford the purchase. Remember saving rates are currently at an historic low, this means it’s often more sensible to use your savings than borrowing at higher rates of interest.

For example, let’s say you want to purchase a vehicle for £10,000, you have this amount in a savings account. Typically saving accounts earn around 2% interest per year, this means you’d earn around £200 in interest.

However, let’s say you borrowed £10,000 and the interest was around 10%, you’d have to pay £1,000 interest on the car loan in one year. As you can see, you’d be at least £800 worse off if you decided to get a loan than using your savings.

In addition, if you have half of the car price in a savings or bank account, it can be a good idea to ‘put down’ a large deposit, normally as much as you afford, thus reducing the amount you’d need to borrow for a loan.

Buying a Car on a Credit Card


motor door handle dealership Sometimes purchasing a new vehicle using a credit card can be a good idea, as it offers you more protection should something ‘go wrong’. You can either pay for all the car (if your card limit allows) or pay the deposit using the credit card.

Normally you’ll get ‘extra protection’ as long as the vehicle is worth over £100 and less than £30,000 and you meet all of your monthly card payments. In theory, this can mean you may pay a deposit of £50 and pay the rest using your card. However, you should note, not all dealers will accept credit card as a payment method.

As previously mentioned, if you use a credit card to buy something costing over £100 and up to £30,000, you’re covered by ‘section 75’ of the Consumer Credit Act. This means the credit card provider has equal responsibility (or ‘liability’) with the seller, if there’s a problem with the things you’ve bought, or the company you’ve bought them from goes out of business.

The main ‘element’ you’ll need to pay close attention to, is the interest rates on the credit card, some people may have interest-free 0% credit cards, others may not. Typically, cards can be ‘higher’ than other forms of finance. In most cases, it’s always recommended to pay off the balance ‘as fast as possible’, this is to reduce the amount of interest you may have to pay. If you want to find a 0% credit card for buying a car, please visit our fantastic Credit Card deals section today!

How does Hire Purchase Work?


You’ll find that hire purchase is one of the ‘simplest’ forms of car finance in the United Kingdom. Typically, it works by paying a low deposit first, you will then ‘rent’ the car for a fixed duration with the option of buying it at the end of the contract.

During the contract you’ll make monthly payments, this means you don’t ‘own’ the vehicle until the final payment has been made. This final payment can be ‘large’ compared to monthly payments as this is normally the ‘remaining’ balance, which needs to be paid in full.

The advantages of Hire Purchase are:

  • Low deposit required – usually around 10% of the cars value

  • Interest rates are usually fixed, this means you’ll know exactly how much you’re going to pay each month

  • The repayment can be from one to five years, this can make it easier to fit into your monthly budget. However, you’ll need to remember the longer the contract, the more you’ll pay in interest

  • Once you’ve paid half the cost of the car, you may be able to return it and not have to make any more payments. This isn’t ‘always’ possible, you’ll need to read your agreement and its terms and conditions to find out if this applies to you
The disadvantages of Hire Purchase are:

  • You don’t own the vehicle until you’ve made your final payment. This means your lender may be able to take the car away, should you miss payments or get into financial difficulties.

  • Your deposit and term length will affect your monthly payments. It’s usually recommended to pay as much as you can afford for your deposit, this will ‘reduce’ your monthly payments

  • Until you’ve paid a ‘third of the total amount’, the lender can repossess the car without a court order.

What’s a Personal Contract Purchase?
Personal Contract Purchases are also known as PCP, in the UK these can be one of the more ‘popular’ options for financing a car purchase. It can sometimes be tricky to understand Personal Contract Purchases as they can be complicated.

In basic terms, it’s similar to renting a car, you’re basically allowed use of the vehicle until the contract ends. Once the contract has ended you can:

  • Pay the amount the vehicle is now worth and keep it as your own

  • Return the car

  • Use the ‘resale value’ towards purchasing a new car
new car In most cases a PCP car agreement will typically last from three to five years, some can be shorter, however this tends to be the standard duration. Before being accepted, you’ll need to ‘pass’ a credit check, obviously if you have a bad credit history you’ll most likely be rejected for this type of finance.

After you’ve passed the credit check, you’ll need to pay an ‘upfront’ deposit. This amount ranges massively, usually depending on the vehicle type, the contract duration, manufacturer and more.

You’ll normally pay more money over the duration of the contract than the Personal Contract Purchase is worth, this is because you’ll be paying interest as well as the monthly hire amount.

You should also remember, that most contracts have strict terms in the agreement, such as limits to the miles you can do. If you do more miles than your agreement states, you could face ‘penalty charges’.

Remember, you won’t own the car at the end of the agreement. You can buy it by paying a final payment, this is normally known as a ‘balloon payment’, which is generally a few thousand pounds.

You’ll also often need to ‘stay’ with the same dealership to be able to use any remaining equity in your car, as a deposit for a new car through Personal Contract Purchase.
How does Personal Contract Hire Work?
Personal Contract Hire is also known as PCH, with this type of leasing you NEVER own the car. You simply ‘hire’ the car for an agreed duration and give it back at the end of the contract. Here’s how it works in more detail:

Step 1
Firstly you’ll need to pass a credit check, if you do, you’ll typically have to pay a few months of the lease amount ‘upfront’. This can range from a few hundred pounds to a few thousand.
Step 2
Once accepted you’ll get the car to use, normally the agreement will have a ‘limit’ on the number of miles you can do per year. If you exceed these limits you may have to pay additional charges. However, on the ‘plus side’, with a Personal Contract Hire costs such as servicing and vehicle excise duty (car tax) are included, so you only need to pay for fuel.
Step 3
You use the vehicle for the duration of the contract agreement, in this time you should keep the car in a good condition. Any damages may result in a penalty charge that you’ll have to pay. Please read your agreement’s terms and conditions for further information regarding this.
Step 4
At the end of the agreement you return the car. The vehicle will be ‘inspected’ for chips, body work damage and so on. You may have to pay additional charges if anything needs repairing.

Using a Personal Loan to buy a Vehicle


Sometimes it can be a good idea to use a personal loan to purchase a new vehicle, rather than expensive car finance. Of course, this will vary depending on your credit history, your income and your overall financial situation. Remember what’s correct for one person, may not be right for another.

Generally asking your bank or building society for a loan, can be one of the cheapest ways to finance a car purchase. This is because most people will have a decent relationship with their ‘day-to-day’ bank, if you’ve got a good credit score, you may enjoy a more favourable interest rate. Some may even get interest-free periods, this obviously varies depending on which provider you use.

Typically, you’ll need to ‘shop around’ and compare loans to see where you can find the best interest rate, remember you’ll need to compare the APR, this stands for annual percentage rates. This normally includes the interest rate and any other fees the lender may charge.

Here are the advantages of a personal loan:

  • You can apply for a personal loan by visiting a local branch, using the telephone or applying online

  • Loans can be for the ‘whole’ cost of the vehicle or part of it

  • You can usually choose the duration of the loan, this tends to be 12, 24, 36, 48 months and so on. However, it’s important to note, the longer the loan is, the more you’ll typically ‘pay back’ in interest.

  • Personal loans come with a ‘cooling-off period’, this normally starts from either the date you sign the loan agreement or from when you receive a copy of it – whichever is later. If you cancel, you have up to 30 days to repay the capital and interest

  • There’s usually fixed-rate deals throughout the year, if you have a decent credit score. Please visit our Car Finance deals section for further information.

  • Contrasting with other types of credit, you own the car while repaying the loan, this means if you get into financial difficulties you could easily sell it.
Here are the disadvantages of a personal loan:

  • Some providers may make you ‘wait’ for the money. This can be a few hours or a few days.

  • Normally you’ll need to pass a credit check, this doesn’t ‘always’ apply, but in most cases it does. You could ‘fail’ this credit check and be refused for a loan

  • Sometimes personal loans aren’t always the cheapest way of borrowing. From time to time car dealerships offer very low interest deals to shift their excess or old stock, you’ll need to check whether this is a better rate than a loan from the bank.
Remember you can use our fantastic Loan Calculator to work out your monthly repayments and any interest you may have to pay!

Car Loans UK and Credit Scores


If you’re planning to apply for UK car finance, most providers will run a credit check against you before they accept your application. It goes without saying, the people with the ‘best’ credit scores, will receive more favourable interest rates. It can take years to achieve a good credit score, so you’ll need to make sure your financial history is in order before applying.

Typically, you won’t get approved for a car loan from a mainstream lender, if you’ve been bankrupt in the last few years, have a CCJ or been convicted for a monetary offence, such as money laundering or fraud. However, there are providers who may consider your application.

In addition, just because you may ‘pass’ a credit check, don’t become compliant and think you can easily afford the vehicle, in some cases you may not be able to. It’s up to you, to figure out your financial situation, calculate your monthly incomings and outgoings to see how paying for a car loan may affect your monthly budget. Why not visit our Monthly Budget Calculator, this is a free tool which can show where you’re over-spending.
Original Publication: 01 May 2017
Last Updated: 03 May 2018

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