The term ‘car finance’ encompasses all financial products provided specifically for the purpose of purchasing a vehicle. Examples of which include hire purchase agreements, personal contract purchase (PCP) options and a variety of traditional loan options. The idea being that in all instances, you get to drive the car you need right now, before paying off the balance over a series of months or years.
With the basics of car finance explained, we’ll now take a closer look at the pros and cons of personal loans.
What is a Personal Loan?
Personal loans are also commonly referred to as unsecured loans. In the simplest terms, the borrower applies to a bank or lender for a specific amount of money, which if granted is then repaid over an agreed number of months with a set rate of interest.
The way things stand at the moment, personal loan interest rates can be as low as 3% or even 2%. Every lender has its own unique policy on general fees and borrowing costs, which may include initial setup fees, completion fees and early repayment fees.
How Do Personal Car Loans Work?
As the name suggests, unsecured loans are not secured against the assets or property of the borrower. Instead, eligibility is determined by assessing the borrower’s current financial position and their credit history. Both of which will determine whether they qualify, how much they can borrow and even the costs of the loan.
Where an application is successful, the funds can be made available within a matter of days. They can also be used for just about any legal purpose, after which the loan is repaid gradually over an agreed number of months.
Personal Car Loan Advantages
Personal loans represent one of the most popular approaches to vehicle purchase in the United Kingdom for several reasons. The first of which being highly competitive rates of interest, coupled with modest overall borrowing costs. There’s also a fair amount of flexibility, enabling the borrower to determine exactly how many months they wish to repay the loan over.
In addition, those who qualify for a personal car loan could gain access to the cash they need in a matter of days. After which, they are free to do anything they like with it. As the vehicle is technically being bought for cash in one lump sum, the buyer becomes the rightful owner of the vehicle immediately.
Personal Car Loan Disadvantages
On the downside, you may find yourself counted completely out of the running with a poor credit rating. There is almost no allowance whatsoever for poor-credit applicants to qualify for personal loans with major high street banks and lenders.
In addition, your credit history and financial status will have a marked impact on the competitiveness (or otherwise) of the loan. It’s not uncommon for poor-credit loans to be offered with an APR in the region of 50%.
It’s also worth noting that applying for a personal loan in the first place could leave a mark on your credit report. Hence, if you’re already struggling with imperfect credit, it’s a good idea to apply only with extreme caution.
Purchasing a car with a personal loan is an option, but might not necessarily be the right option for you. Before making your final decision, consider the various car finance options on the table and choose a package that suits both your preferences and your pocket.