What are car loans?

Car loans are not too much different from an unsecured personal loan. You can receive it from a building society or bank, your repayments are made over equal periods for an agreed term, and those payments feature a mixture of capital repayments and interest charged upon the capital. Lenders aren't particularly worried about what you are spending the money on with an unsecured loan, so you won't have to have the car your buy valued. If you default on the loan, you can be taken to court (the car cannot be automatically repossessed, as it would be with a secured loan), but the companies will be loath to do this, as it costs them a lot of money.

There are many ways you can finance a car's purchase. Car loans is just one of them. There is also Personal Contract Purchase (PCP), where you pay an amount up front, then monthly payments, then you can either keep the car by paying a final payment or give it back for nothing. Then there is Hire purchase, which is not too much different from car loans - in that you are given the money to buy the car, and pay it back in instalments. However, the difference is in the ownership of the car. With hire purchase you do not own the car until you have fully paid off all of the instalments. With car loans, you own the car from the moment you have bought it with the money lent to you.

This obviously increases the lender's risk, and anyone with knowledge of loans will know that increasing the lender's risk does not come cheaply! You can expect to pay much higher interest rates (APRs) on your loan as a consequence. Furthermore, lenders are not comfortable lending money on an unsecured basis, so you may borrow an amount sufficient to buy the car that you want. So do not expect it to be easy to borrow over £15,000 on an unsecured car loan. Also, since it is an unsecured loan, you are likely to find that car loans applications, whilst being processed quickly will be not so easily approved, as the lender can't just take the car if payments aren't made.

When comparing car loans, look at the APR. This is the annual percentage rate, and is the yearly interest that is actually charged on the loan including insurance costs and arrangement fees. It is the APR figure that should be used to compare to other loans. You may, for instance, be able to get a loan from your car dealer, which is convenient, but is rarely the best deal, and you should use the APR to compare it.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2008

Loans

Ask About

> Loans Advice
> What is a personal loan?
> What is a secured personal loan?
> What is an unsecured personal loan?
> Do companies specialize in student loans?
> What is the difference between a bank loan and a personal loan?
> Will I be able to get a loan if I have bad credit?
> I need to consolidate my debts, is it advisable to get a consolidation loan?
> What is a bridging loan?
> How do I find the cheapest rate for loans?
> How do I find a low interest loan?
> What is a career development loan?
> I am a tenant, how am I able to get a personal loan?
> What is a home improvement loan?
> Can I take out payment protection on the loan?
> Is Payment Protection Insurance Suitable for me?
> Can I claim on PPP if I am suffering from stress or mental illness?
> What is the difference between a mortgage and a loan?
> What is a business loan?
> How are Business Loans structured?
> Should I get a Small Business Loan?
> What is a home equity loan?
> What are the tax laws on UK loan interest?
> How do I get an online loan?
> What kinds of loan company can I find?
> What is a Flexible Loan?
> How do I apply for a loan?
> How do I get a fast loan?
> How do I get an easy loan?
> How do I use a loan calculator?
> How do I get a fast cash loan?
> How is my loan rate calculated?
> How do I compare APRs?
> What is credit scoring?
> Why do some lenders decline my loan applications?
> What is a credit reference agency?
> What do I do if credit reference agency information stops me getting credit?
> What do I do if I get into loan repayment Difficulties?
> What are the alternatives to taking out a loan?
> What are the different types of loan interest?
> What are car loans