Financing a car – even a second hand one – is a huge risk for anyone. Buying a car is one of the biggest financial decisions you’re likely to make, second only to buying a house, so securing the best kind of finance for you is essential.
It’s not as simple as asking your bank for a loan.
Or is it?
All car dealerships have the capacity to lend you money, either as a PCP deal, a Hire Purchase arrangement or a Lease. You’re likely to be offered one of these three if you’re ready to sign on the dotted line. Each has their advantages and each has their risks
But could a Personal Loan be a better option?
As with most things, it depends on you.
Buying a car directly from a dealership or car finance company is certainly simple, with all your paperwork and direct debits linked to your car and handled directly. Involving a second party, like your bank or a lending agent, might seem like overcomplicating the matter.
In reality, it might actually be the simpler option.
There are complicated calculations involved in buying or leasing a car from a manufacturer or dealership using a finance plan – calculations around depreciation, insurance, under-writing and fees. You didn’t really think it was just a matter of paying for the car directly from the manufacturer, did you?
With a personal loan much of that complication goes away: once you’ve signed on the dotted line, you’ll be handed a lump sum and you’ll pay for the car.
Unlike a Hire Purchase agreement, the car will be yours immediately if you pay the full price of the vehicle. The car is then your asset and you can sell it on, exchange or drive it – however you like.
Most personal loans for cars are unsecured so, unlike dealership deals, your car is less likely to get repossessed if there’s a problem.
The other big advantage is that banks and building societies always like to keep their customers happy. If you approach a bank that you’re already a customer with, there’s a good chance that they’ll offer you a preferential deal. Depending on your credit score, you might even be able to secure a loan with a 0% APR repayment period, saving you £thousands in fees.
Sounds good, doesn’t it? Where’s the catch?
The devil, as they say, is in the details.
Even with preferential deals, using a Personal Loan to buy a car is likely to cost more per month than Leasing or PCP deals, even if the total amount is lower.
With Leases and PCPs you’re, essentially, paying the depreciation of the vehicle plus your down payment and fees. This means that the monthly cost will be lower every month. If your monthly finances are tight, this might tip the balance in favour of those types of finance deals, even if you don’t automatically end up with a car on your drive 3 years later.
Lump-sum Personal Loans can also take longer to agree, with the money not always immediately available to you.
Banks need to be certain about the loan and this is often checked many times before the money is made available. There are also legal reasons to make you wait, to allow cooling off periods for both you and your bank.
If you’re in a hurry to get your car, a Personal Loan might not be the best idea.
So there you have it: the ins and outs of buying a car with a Personal Loan.
If you’re interested in a Personal Loan for a car, talk to your bank or speak to one of our experts at ChooseMyCar.com to see what deals are available.
Until next time, stay safe on the road.