Things to think about when considering new or used car loans

So once you know whether you need a used or new Car Loan or Car Finance, or a combination of both to help you buy your car, you can start shopping around for the right deal.

If you're not sure where, or who, you want to buy your car from maybe consider getting a pre-approved car loan from a high street lender or finance company. This gives you an opportunity to shop around for the best rates. All banks and lenders are required to provide a Key Summary Box for their lending products detailing rates and charges that will apply, including the Annual Percentage Rate (APR), which you can use to compare advertised offers.

Lenders may also offer car-related incentives with their car loans, such as roadside assistance breakdown cover, free motor insurance cover or special discounts on car accessories at affiliate garages and stores. Having a lump sum approved before you start shopping around for a car means you:

• Know how much you have to spend
• Stay within a budget you can afford
• Can pay for the car immediately
• Just want to pay to have the use of a car for a fixed period of time without the costs of repairs and servicing?

This approach can work well for people who don't want to use the car (or their home) as security for the loan, want to buy privately, or want to pay cash (either as a deposit or full amount) to a car manufacturer or dealership.

Another way to get funds in place before you find a car is to shop around for a car finance company or broker, who instead of a loan can offer pre-approved Hire Purchase finance (or credit limits), which:

• Use the value of the car as security
• Are quick and easy to arrange
• Have flexible terms
• Must be used at nominated car manufacturers or dealerships within the UK

When you find the car you want to buy, you just let the car finance company or broker know and they contact the dealership directly to arrange payment. As part of the purchase the car finance company or broker may also arrange for a car inspection to confirm it is valued correctly. Car finance companies that are not tied to a specific car manufacturer or dealership might also offer incentives that are not car-related such as shopping vouchers and discounts.

When shopping around for car loans and car finance use reputable lenders who are registered and monitored by the Financial Services Association (FSA) and/or the Financial and Leasing Association (FLA) and are members of the Consumer Credit Trade Association (CCTA).

The other way to pay for a car is through a manufacturer or car dealership where you arrange finance directly with them on the spot via a registered finance company, either a Hire Purchase, Personal Contract Purchase or Personal Contract Hire agreement, which can:

• Give you access to 0% Finance deals (usually with a large deposit)
• Include free insurance for a year, or free MOTs
• Be a more expensive option in terms of higher APR interest rates, additional finance charges and the amount you are allowed to borrow.

When shopping around be careful about deals which advertise weekly payments (rather than monthly repayments) which may appear low but actually have high interest rates attached. Also check whether it is a flat interest rate (which doesn't include all charges that apply) or an APR (which does include other charges) being advertised.

Whichever way you buy your car make sure you understand all the costs and charges associated with your car loan or finance, some good questions to ask lenders and dealers are:

• What will the monthly repayments be?
• What is the final purchase amount payable at the end of the term?
• What is the total overall cost of the loan/finance?
• Does the APR increase if you pay a larger deposit or trade in another car?
• What credit arrangement fees apply?
• Are there fees for early repayment of the loan or finance?
• How easy is it to change or cancel the finance agreement?
• What penalty fees are there for exceeding pre-arranged mileage limits or returning the car in poor condition?
• Do they offer Gap, Shortfall insurance or Payment Protection Insurance and if so what does it cost?
• Are there any other on-road or transference of ownership costs payable?
• How long is the loan or finance term for?

Most high street banks and finance companies have online sites you can use to search and compare car loan products. If you don't know which lender you want to use, just doing a search from your home page, for example typing in "UK car loans" will bring up several links for you to investigate.

You can also take advantage of several independent comparison sites which compare different types of car loans and finance options, and present like for like options. It's advisable to compare at least three of the same type of car loan or finance to make sure you get a good deal.

We've included links below to some independent comparison sites to help start your search:

www.moneysupermarket.com/c/car-finance/ Find and apply for the best car loan deals available to you.

www.moneyexpert.com/compare-loans.aspx Compare and apply for unsecured personal car loans from £500 to £15,000

Download the Car Loans PDF Guide here - see our other free PDF guides here

What are car loans?
What do you need for new or used car loans?
What's the difference between car loans and car finance?
Things to think about when considering new or used car loans
Applying through a car lender or car finance company
Car Loan FAQs - eg. bad credit car loan
More helpful car loan links

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