You can apply for a personal loan from your local bank or an online lender and use this for any personal endeavours, including buying a car.
Using a personal loan to purchase a new car has its benefits. Certainly, if you have a good credit score, you could access some very low rates starting from 3% APR.
Once the loan is approved, you can purchase a new car outright or instalments if you prefer, because once the loan is funded, it is essentially treated like cash.
The loan is unsecured, so if you cannot keep up with repayments, you do not risk losing your vehicle – and you are repaying an individual lender directly instead.
How does buying a car with a personal loan work?
- Apply online with a personal lender
- If approved, you can use the funds to buy a new car
- The lender transfer the funds to a car dealer
- Repay over 1 to 7 years in equal instalments
Pros of buying a car with a personal loan
Cost effective – Personal loans can be incredibly cost effective if you have a good credit rating, stable income and good affordability. Rates for personal loans on the market start from 3% if you are a perfect candidate. Not everyone will be eligible for these rates, but those who meet the criteria can pay very low rates.
Flexible – Taking out a personal loan to buy a car gives you quite a lot of flexibility and you are not bound by car dealers and their terms and conditions. A personal loan can last up to 7 years, giving you extra time to pay it off if you would like to. You can also buy a vehicle upfront, since the loan is transferred to you in one lump sum. You can always repay early too, although you should check for early settlement fees.
Not secured – A personal loan is typically unsecured, so your eligibility is based largely on your income and credit status. By not being secured against a vehicle, you do not risk this being taken away from you if you cannot meet repayments. So if you need to drive to work or take the kids to school every day, you have this peace of mind.
Can own the vehicle outright early on – With a personal loan, you can use the money as cash to buy the car outright if you would like to. This means that you will own the car completely and do not have to spend years paying it off like you would for a PCP or HP deal. You can use the car for the rest of your life or gift it to your children if you wish.
Cons of buying a car with a personal loan
Often more expensive than other forms of car finance – Although low rates are available, this is not available to everyone and the 3% rate advertised may only be available to some customers. Specifically, lower amounts of up to £5,000 generally start at 12%, but only get to 3% once above £5,000 – in which case better rates are available for borrowing higher amounts which may not be favourable to some.
Furthermore, with a personal loan, you may be committing to buying a car upfront – whereas using PCP or HP allows you to pay a minimum 10% deposit and spread repayments. So it may be quicker and easy to get on the road with other forms of car finance and with less financial commitment.
Need a good credit score – The best rates are reserved for people with good credit ratings and if you have a fair credit rating or are below average, you could be paying significantly more for a loan. If you have a less than perfect credit score, you can find more information here about bad credit car finance.
What do I need to consider before I apply?
Compare rates – There are more than 50 personal lenders in the UK, so be sure to use price comparison sites and check things like loan terms, APR, monthly repayments and early repayment charges. You can use eligibility checkers to give you an indicative quote and they do not impact your credit score.
Check the representative APR – As per regulatory guidelines, brokers and lenders must state their rates as ‘representative APRs’ and this means that the rate advertised is available to 51% of successful customers. This means that not everyone that applies and approved will get the advertised rate and it could be lower or higher depending on your personal circumstances.
Check the interest rates – fixed or variable? You should always check the interest rate you have been offered, in terms of cost and also to see if it is fixed or variable. A fixed rate remains the same throughout the loan term, but variable rates may be higher or lower depending on various factors. It is worth checking this to avoid paying more for your loan than necessary.
What happens if I do not repay my personal loan?
Your personal loan will be made up of monthly payments that you will pay to the lender and if you fall behind of these, you may incur late penalties and a negative impact to your credit score.
From a vehicle perspective, this will not impact your ownership of the vehicle if you bought it outright and you will continue to own the car you have purchased. If you have a certain arrangement with a dealer and the loan is secured against the car, you will lose the car if you go several months without repayment.
However, in most cases, lenders and car finance providers will also offer forbearance if you are struggling and this may include offering a payment holiday or a payment plan.
How can Quick Car Finance help?
Quick Car Finance is a regulated broker and we offer over 48 different finance arrangements to help you buy the car of your dreams – and this includes helping you find the best rates on personal loans for cars.
Our main goal is to maximise transparency in every step of the car buying process. Our system is designed to offer you the most competitive rates possible and once approved, we check the vehicle and the car dealer to ensure a smooth process.
Our entire application is online and free to apply, with no impact to your credit score. If successful, funds can be transferred to you or the dealer of your choice in 24 to 48 hours.