The automotive industry has seen a steady increase in vehicle prices over the past few decades which has made the prospect of buying a new car difficult for many consumers. In order to help consumers keep up with rising costs for what is seen by many as an essential purchase, a wide variety of car loans are available to UK customers.
Let’s take a look under the bonnet of car loans and find out how this line of credit can help you to purchase your next vehicle.
What Are Car Loans?
As the name suggests, car loans are a form of personal finance which can be used to purchase a new or used vehicle.
During the application process you’ll need to inform your chosen lender of some basic financial and vehicle details. These can include how much you’d like to borrow, the make and model of the vehicle, your driving licence status (full, EU, UK etc.), your occupation and some additional information on your personal finances.
The application is then underwritten in the same way as a traditional personal loan and, once you’ve been approved, you’ll receive a full break down of your repayment terms via your credit agreement.
What Types Of Car Loans Are Available?
The two most common types of car finance available in the UK are taken out through personal loans or hire purchase agreements. Whilst they both fundamentally result in providing you with the funds to make a car purchase, it’s important to understand the differences in the ways they are structured.
Car loan finance as a personal loan will mean that you receive a lump sum equal to the amount needed to complete your car purchase. As soon as you’ve signed and returned your credit agreement, a lump sum will be paid directly into your bank account, enabling you to complete your purchase from either a private seller or showroom.
You’ll know exactly how much you’ll be required to pay back each month along with a detailed breakdown of the interest payments, total amount repayable, and the end date of the loan. These loans are most commonly issued on an unsecured basis meaning that none of your assets are used as collateral whilst you’re making repayments.
Hire purchase agreements have been around for decades and offer prospective vehicle owners a way to spread the cost of a vehicle purchase over a chosen number of months or years. Unlike with personal loans, hire purchase agreements are secured against the vehicle being purchased so you won’t actually own the vehicle until your final payment has been made.
In effect, the hire purchase lender will actually purchase the car in full on your behalf and then allow you to buy if from them in monthly payments, plus interest. Providing the vehicle as security is a great way to reduce risk to the lender which, in turn, can lead to higher rates of acceptance and potentially lower interest rates.
Hire purchase agreements can typically only be taken out for vehicles bought from authorised dealerships. Since they are purchasing the car on your behalf, they’ll want to see evidence as to where you’re vehicle is coming from, that it has been fairly valued, and is in sound working order.
As soon as the final hire purchase payment has been made, the ownership of the vehicle will be transferred to you.
Can I Have More Than One Car Loan?
Yes! As with any type of loan, your acceptance will be subject to status. This means that each application will be treated on its own merit and, as long as you can prove that a new loan or hire purchase agreement is affordable. You may need to disclose that you already have existing car finance in place, however this will be taken into account as part of your affordability check.
Each car loan lender has their own terms and conditions when it comes to how much you can borrow and over how long. Although not a fixed rule, you’ll typically be asked to borrow a minimum of £1,000 with a minimum term of 12 months, however there are lenders who can offer flexibility around these figures.
How Can I Apply For Car Loan Finance?
Loans for cars are quick and easy to apply for thanks to the Creditraters.com car loan comparison service. Simply complete some basic information online about the amount you wish to borrow and we’ll compare lenders from across the UK to help you find a great deal.
Once you’re application has been submitted, you’ll be informed of the final outcome within a matter of days and funds will be transferred directly to your personal bank account.
So what are you waiting for? Get a great deal on your next car loan today at Creditraters.com and take the hassle out of financing your new vehicle purchase.