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.

If you’re ready now you can apply for car finance through ChooseMyCar, or try out our car finance calculator. If you want to know more about Personal Loans though, read our quick guide below.

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.

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 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