Using a loan to finance your car

For most people the purchase of a car is second only to the purchase of a house in the amount of money required. Therefore many people take out some sort of a loan to be able to buy the car. Finance plans offered by car dealers can be extortionate in their rates of interest. Financing a new car purchase via an independent car loan specialist can give you a more reasonable interest rate and repayments can be spread over a long period if you wish. This can make buying a new vehicle much more affordable.

To purchase a new car, there are two main types of loan which you can use. The first is a specialist car loan – here the loan amount if secured against the car rather than your house. The second is a regular personal loan in which case you are simply choosing to use the borrowed funds to buy a new car.

Most loan companies offering secured or unsecured loans are happy to lend the funds to go towards the purchase of a new car, but with specially made car loans you often get a greater degree of flexibility on repayments and other features too which can be beneficial in the purchase of a new vehicle. Such features may include the possibility of deferring repayments, the option to make lower initial payments and then make a lump sum payment at the end of the loan period, cashback on the vehicle, payments made direct to he car dealer, and other niceties like vehicle checks or membership of a breakdown service.

Whatever kind of loan you choose, the monthly repayments will probably be based on a percentage of the full amount of the loan distributed evenly over the term of the loan together with interest payments. The interest rate that you will have to pay will be dependent on your personal circumstances, the amount you wish to borrow. If you are using a specialist car lender, it may also depend on the vehicle being purchased.

Like home loans are secured on the borrower’s home, car loans will probably be secured on the vehicle being purchased. If repayments fail to be met, then the vehicle can be reclaimed.

Most car loan specialists place no restriction on dealers or the type of car that can be purchased with the borrowed money. Nevertheless it is worth checking on details as some do specify that you can only buy a car from particular sources.

You also need to understand whether payment protection insurance of gap insurance are automatically included in the monthly repayment amount or if they are optional extras. Payment protection insurance covers the loan repayments if due to sickness or unemployment you are unable to meet them. Gap insurance is meant to pay out to you if the amount granted by your insurance company in the event of your car being written off in an accident or stolen is not enough to replace the car. Both these types of insurance can be useful additions to your loan, providing reassurance that if the unforeseen did happen you would not lose your car. However the insurances do come at an additional cost, so look out for it.

You also need to check whether there are any arrangement fees imposed. Comparison of the features and monthly repayments on offer from different car loan specialists, regardless of your circumstances, you should be able to borrow an amount sufficient to purchase your new vehicle, with repayments to fit in with your lifestyle.

Netcars is one example specialist car loan company. You can apply online to get a quick answer. You can choose your car from any dealer nationwide. Netcars value the vehicle to “make sure you’re getting a good deal”. They don’t restrict you to new cars either. Netcars can offer rates as low as 7.9% APR, and those with bad credit, CCJs, arrears or defaults can get a loan too. Repayments are made directly to the supplying dealer. Netcars offer optional Payment Protection and GAP Insurance. Netcars will lend from £2,000 to £50,000, but they do not offer deferred payments. Netcars is a car loans broker thereby offering a country wide service. So you can apply with netcars for a car loan whether you are in London, Manchester, Birmingham, Cardiff, Glasgow, Leeds, Liverpool, Nottingham and so on. Once you have located a car and agreed figures with their sales team they will send the documents to the supplying dealer for you to sign.

Welcome Car Finance is another example specialist car loan firm. They say: “Credit problems don’t have to hold you back from buying the car you want. Even if you’ve had CCJs and mortgage arrears, or you’re self-employed or have no credit history - Welcome Car Finance are here to help. We could approve you for car finance and tailor a deal to your needs.” They have a minimum loan of £1000 part exchange, and £250 cashback on completion. They don’t accept deferred payments and have a list of dealers to choose from.