Cars loans are a great way to spread the cost of owning your next vehicle into monthly instalments. Car loans can be suited to your budget and allow you to get a car on your terms. Drivers like the flexibility of finance deals and there are a number of loans to choose from! Secured and unsecured loans are two ways in which you can finance a car and depending on what you want from your deal, you may be better suited to one type of loan over the others.
Unsecured loans
Buying a car with an unsecured loan means that the lender does not own the asset, in this instance, the car you get. They are riskier for lenders as they have no collateral to use if you fail to stick to the rules of your agreement. Due to the increased risk involved, the lender may set higher interest fees for customers as a way to secure the deal. For this reason, people with the best credit scores may only have access to unsecured loans as they are less likely to default on future loans. If you default on your payments on an unsecured loan, the lender can act against you, and it can end up in court so it’s important that you only take out a loan for an amount you can afford to pay back each month.
Personal loans
Personal loans are a form of unsecured loan and can be offered by big companies such as banks or building societies. A personal loan is when the lender deposits your requested amount of money straight into your bank account. You have the freedom to buy any car you like with the money from any dealer. You then make monthly payments back to the lender over the agreed term and with any interest or fees included in your monthly payments too. Since you’re buying the car outright, you’ll be able to modify it as you like, use it as much as you want and sell it when you’re ready. If you sell your car before the loan ends, you will still need to keep making the repayments as the loan isn’t secured against the vehicle. Alternatively, lenders allow you to pay off the loan early in full but can put additional charges in place for you to do so.
Secured loans.
A secured loan means that the lender owns the car throughout the agreement and has the right to use the car as collateral if you fail to repay. If you have a history of late or missed repayments, secured loans can be available as the lender can take the car off you but you should enter into a finance agreement with caution and if you fail to repay, it can also lead to much more serious financial consequences. Secured loans can benefit from lower interest rates which can save you money in the long run.
Hire purchase.
Hire purchase is one of the most straightforward forms of secured loan. When you get hire purchase for a car, you spread the full cost of your chosen car, with interest into equal monthly payments until the end of the agreed term. Hire purchase can be spread over 3-5 years and you can tailor the term to your monthly budget. Once all payments have been made and you come to the end of the term, you can pay a small option to purchase fee to take ownership from the lender and the car is yours to keep!
Personal Contract Purchase.
Personal contract purchase (PCP) is another form of secured loan but works in a different way to hire purchase. Instead of making equal payments to cover the cost of your car, you make lower monthly payments and put off much of the cost till the final balloon payment. You make monthly payments with interest back to the lender and if you wish to keep the car, you will need to pay off the final balloon payment. This type of finance is bet for those who don’t really want to own the car at the end as the final payment can be thousands of pounds to pay. For many drivers this can be unrealistic and instead you can choose to hand the car back to the dealer. You will need to stick to the rules of the agreement and if you don’t the lender can take the car away. You will also need to set an agree annual mileage and agree to keep the car in good condition, if not. There can be additional payments to make at the end of the deal.
