Personal Loans for Financing Used Cars
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.
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.
Due to the vast range of personal loans on the market, bad credit often isn't a huge issue - in
particular, a guarantor loan could be a great option if your credit score is low.
Is a Personal Loan right for me?
Personal Loan: Things to Consider
- Always check the annual percentage rate (APR) of a loan before making a final
- 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.
Other guides related to car finance
Other Types of Car Finance
Frequently Asked Questions
This will vary depending on the type of car finance and your own credit score. Below are some representative examples of good APR rates for the different types of car finance:
Hire Purchase: 9.46%
Personal Contract Purchase: 5%
Personal Loan: 2.8%
The above are purely representative and are based on a good credit rating.
The amount you can afford to spend on a car will vary depending on your situation. The important thing is to make sure you can afford any repayments that your car finance agreement sets out. Missing repayments can cause issues between you and your lender and could end up in court or affecting your credit rating.
To work out what you can afford, try our car finance calculator.
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.
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.
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