Personal Car Loan

A personal loan allows you to borrow money from a bank, building society or another lender as an alternative to other forms of car finance. This loan then allows you to act in a similar way to a cash buyer, meaning you own the car outright from the very beginning of your agreement.

A personal loan may be a good option for financing a car if your credit score is not ideal. This type of finance is unsecured – so there is no risk of losing the car. Lenders typically mitigate that risk by setting a higher APR (compared with a secured loan). Due to the nature of these loans the repayments may be higher, and spreading them out over a longer period could end up with you paying more due to the interest it will accumulate.

How Personal Loans Work

Once you’ve found the specific used car you want to purchase you will know how much you need to borrow from a personal loan lender. The loan value will be based on the car price, minus any deposit or savings you may have that you can put towards the cost fo the car.

Usually, with a personal loan, you borrow an agreed amount of money and repay the agreed amount in monthly instalments over a set period of time (usually 1 to 5 years, but it can be longer). Interest rates can vary and will depend on the amount you are borrowing and your credit rating. Having a good or excellent credit rating usually opens up better interest rates as lenders see this as a lower risk.

Getting pre-approval on a personal loan puts you in a similar position to a cash buyer; that could help put you in a strong negotiating position when buying, as you’ll be free to buy any car from any dealer.


Is a Personal Loan right for me?

Own your car outright

Own your car outright

This option will allow you to own your car outright as soon as you have it in your possession.

No mileage or maintenance restrictions

No mileage or maintenance restrictions

As the car is yours right off the bat you’ll not have to worry about any restrictions on miles driven.

No deposit required

No deposit required

Unlike other types of finance you definitely won’t need a deposit for a loan, however you can reduce the size of a loan with an upfront payment off the overall cost.

Personal Loan: Things to Consider

  • Always check the annual percentage rate (APR) of a loan before making a final decision.
  • You should check how much it will cost you over your lifetime. When checking the APR of your loan you can work out how much you’ll pay off. Whilst you can spread the costs over a longer period to pay less each month, this could end up with a significantly higher overall outgoing.
  • While a bad credit score may affect your ability to apply for a personal loan it often isn’t a huge problem. We have further information on car finance for people with bad credit scores.

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Frequently Asked Questions

If you need to borrow more than a company will lend then there are few things you need to consider:

  • Check your credit rating and work out whether there are ways you can improve your credit score. Lenders will be more willing to lend to people with better credit ratings.
  • Consider the car you want to buy and whether there are more affordable options
  • Consider getting the same car as a used model

You can repay a personal loan early, but check your contract to find out whether there are any charges for doing so. You’ll need to work out whether these additional fees will cost you more than paying off the rest of the loan alongside the interest.

You are the legal owner of a car with a personal loan. A personal loan allows you to walk into a dealership acting like a cash buyer.

While you do own it, if you sell it before you’ve finished paying off the loan, you’ll still have to make the remaining repayments.