Cheap car loans: Guide to getting the best rates � MSE

What is a personal loan?

If you�re buying a new or used car, you need to borrow, and you want to own the car at the end of the deal, there are two main types of finance you can get.

You can get a hire purchase deal (there's tonnes of info in the Hire Purchase guide to help you pick the right one) or you can get a personal loan. Indeed the latter tends to be very popular, with many people turning up to dealerships having already arranged finance through their banks � or other high street lenders offering decent interest rates.

An unsecured personal loan is a sum of money you're lent by a bank or other lender, which you pay back over an agreed period. But lenders don't offer this money out of the goodness of their hearts. You'll have to pay interest, as well as paying back the amount you borrowed. Obviously, you want the lowest loan rate possible � so you pay back as little as possible.

A personal loan is unsecured - here's what that means...

Loans are similar to most other types of car finance in that you pay back an agreed amount each month over the term of the deal.

However, it differs from most other types of car finance in that the loan is unsecured. That is, the car doesn't act as security for the loan. So, if you can't pay it back, there's no automatic right for the lender to take your car off you, which would be the case if you took dealer finance (though they might still seek a court order to do this if you can't pay what you owe).

What all this means is that you own the car outright as soon as you pay your money and drive off, unlike with finance from the dealer. Sounds good, doesn't it?

Well, there's one big disadvantage � because there's no security, it's harder to get a personal loan than it is to get other types of car finance. To get one you'll need a very good credit record and a decent salary.

But, whether you get a personal loan or an HP deal (or any other form of finance), compare the APR � the interest rate you're offered � to give you the overall cost of the debt. Provided all the deals you're comparing are over the same number of months or years, the one with the lowest APR is the best deal.

In general though, personal loans are one of the cheapest ways to pay for a car purchase if you don't have savings.

How does it work when buying a car?

Once you�ve found a car you want to buy, you�ll know the amount you want to borrow. This is based on the price of the car minus any deposit you have in savings.

With a car loan, you borrow a fixed sum, then repay it in fixed monthly payments, usually over a period of one to five years. Rates vary depending on how much you're borrowing. Borrow a small amount � for example �1,500 � and you could pay as much as 8% to 13% interest. If you're borrowing more � for example �15,000 � you could pay as little as 2.8%.

But, before you go ahead thinking that sounds very cheap, there's a sting in the tail. These rates are what are known as 'representative' APRs. This means only 51% of people accepted for that loan need get that rate. The other 49% can, and often do, get given a higher rate.

And, while we have an eligibility calculator to tell you which loans you're likely to be accepted for, it can't tell you if you'll get the headline loan rate (yet).

Let�s take an example�

Say you're buying a car priced at �14,000:

You stump up a 10% deposit from your savings of �1,400, leaving �12,600 left to pay.
You're accepted for a car loan, and borrow �12,600 over three years.
You get a decent 3.5% APR deal, meaning payments would be �369 a month (so �13,284 for the three years).
You drive away from the dealership in your new car, and start to make your monthly loan repayments.
So in total you�d pay �14,684.

With loan rates so low, in the above example you'd pay just �684 in interest over the life of the loan.

Try to pay some of it with a credit card - it'll give you protection

If you can, try to pay at least some of the deposit on a credit card. This will give you powerful Section 75 protection, meaning it should be a lot easier to sort out any issues with the car further down the line. This is because the credit card provider is jointly liable with the car dealer should anything go wrong.

What happens at the end of the loan?

Once all the repayments have been made, that's it. The lender marks the loan as settled on your credit file, and you have nothing left to pay.

Is a personal car loan the right option for me?

Is a car loan the right option for me

There are so many different options when it comes to buying a car, it can be difficult to choose. Here are the main benefits and pitfalls of choosing a personal car loan:

Pros

It's simple to arrange and understand.
It's flexible � with terms from 1-7yrs (the longer the term, the more interest you�ll pay).
You can use our eligibility calculator before you apply to find out which loans you're likely be accepted for.
You'll own the car as soon as you've transferred the cash to the dealer. This means you're able to modify it exactly how you want.
As you're a cash buyer, you may be able to haggle the price down during the sale.
Unless you can get 0% finance from the dealer, personal loan rates tend to be cheaper than dealer finance.

Cons

Unless you've an excellent or good credit score, you're unlikely to get any loan.
Monthly payments are higher than for some other forms of car finance.
You won't get a manufacturer's contribution as you won't be taking their finance.
As you own the car outright, you're responsible for all repairs.
The car's value will depreciate, so it'll be worth a lot less than you paid when you sell it.

Where can I get a loan?

Where to get a loan

If you're looking for a loan, check out the best buy rates below.

Remember, the advertised rate isn't necessarily the one you'll be offered. Up to 49% of people accepted for the loan could be given a different � usually higher � interest rate.

The rate you�re offered will depend on your credit score, with the best rates available only to those with a squeaky clean history. See our Credit Scores guides for tips on how to boost yours.

We list loans by 'bands' as the rate you could get differs depending on how much you want to borrow. Plus, if you want to check if you'll get the loan before applying, use our eligibility calculator to see your chances. It tells you your likelihood of being accepted by each lender for a loan, though sadly it can't (yet) tell you whether you'll get the advertised rate.

Cheapest loans under �5,000

Cheapest standard rate	Lender and representative APRs (all rates over 1-5 years unless stated) See all official APR examples
Check which loan you can get before you apply Eligibility Calc. (MSE's free tool) Usually the only way to know if you'll get a loan is to apply, which marks your credit file. Our Eligibility Calculator does a soft search to find which loans you'll get without harming your creditworthiness.
Cheapest loans for �1,000 - �1,999 Want to find out if you'll get these loans? Use the Eligibility Calculator.
	A few specialist credit cards can approximate loans and are far cheaper than the loans below, full step-by-step in Money Transfers.
	RateSetter* 6.7% rep APR
	*CU Loans 8.9% rep APR** for �1,500-�1,999 (will find if there's a credit union you're eligible for)
	*Zopa 9.5% rep APR (1 year term) Zopa* 9.9% rep APR** (2-5 years)
	Asda Money 9.9% rep APR (will search various lenders and tell you the rate you'll get before you apply, not in eligibility calc)
Cheapest loans for �2,000 - �2,999 Want to find out if you'll get these loans? Use the Eligibility Calculator.	A few specialist credit cards can approximate loans and are far cheaper than the loans below, full step-by-step in Money Transfers.
	RateSetter* 6.7% rep APR
	*Zopa 6.9% to 7.9% rep APR** (depending on amount & term)
	Ikano Bank 7.8% rep APR (not in eligibility calc)
	*CU Loans 8.9% rep APR** (will find if there's a credit union you're eligible for)
Cheapest loans for �3,000 - �4,999 Want to find out if you'll get these loans? Use the Eligibility Calculator.
	*Zopa 5% to 6.9% rep APR** (depending on amount & term)
	*Admiral 6.7% rep APR**
	*RateSetter 6.7% rep APR**
	Ikano Bank 7.7% rep APR (not in eligibility calc)

Cheapest loans from �5,000 to �15,000

Cheapest standard rate	Lender and Representative APRs (all rates over 1-5 years unless stated) See all official APR examples
Check which loan you can get before you apply Eligibility Calc (MSE's free tool) Usually the only way to know if you'll get a loan is to apply, which marks your credit file. Our Eligibility Calculator does a soft search to find which loans you'll get without harming your creditworthiness.
Cheapest loans for �5,000 - �7,499 Want to find out if you'll get these loans? Use the Eligibility Calculator.
	*New. Sainsbury's Bank 3.2% rep APR (Nectar cardholders only, 2-3 years) New. Sainsbury's Bank* 3.3% rep APR** (Nectar cardholders only, 37mths-5 years)
	*Zopa 3.4% rep APR**
	*Admiral 3.5% rep APR**
	*Hitachi 3.5% rep APR** (2-5 years)
	*M&S Bank 3.6% rep APR** (1-7 years)
	*John Lewis Finance 3.6% rep APR**

Cheapest loans for �7,500 - �15,000 Want to find out if you'll get these loans? Use the Eligibility Calculator.
	*Sainsbury's Bank 2.7% rep APR (Nectar cardholders only, 1-3 years) Sainsbury's Bank* 2.8% rep APR** (Nectar cardholders only, 37mths-5 years)
	*Cahoot 2.8% rep APR**
	*M&S Bank 2.8% rep APR** (1-3 years) M&S Bank* 2.9% rep APR (37 months - 7 years)
	*Yorkshire / Clydesdale* 2.9% rep APR** (1-7 years)
	*John Lewis Finance 2.9% rep APR**
	*Tesco Bank 3% rep APR**

Cheapest loans over �15,000

Cheapest standard rate	Lender and Representative APRs (all rates over 1-5 years unless stated) See all official APR examples
Check which loan you can get before you apply Eligibility Calc (MSE's free tool) Usually the only way to know if you'll get a loan is to apply, which marks your credit file. Our Eligibility Calculator does a soft search to find which loans you'll get without harming your creditworthiness.
Cheapest loans for �15,001 - �19,999 Want to find out if you'll get these loans? Use the Eligibility Calculator.
	*Sainsbury's Bank 2.7% rep APR (Nectar cardholders only, 2-3 years) Sainsbury's Bank* 2.8% rep APR** (Nectar cardholders only, 37 months - 7 years)
	*Cahoot 2.8% rep APR**
	*M&S Bank 2.8% rep APR** (1-3 years) M&S Bank* 2.9% rep APR (37 months - 7 years)
	*Yorkshire / Clydesdale* 3% rep APR** (1-7 years)
	*Tesco Bank 3% rep APR**
	*The AA 3% rep APR (AA members only, 1-7 years) The AA* 3.1% rep APR** (1-7 years)
Cheapest loans for �20,000 - �25,000 Want to find out if you'll get these loans? Use the Eligibility Calculator.
	*Sainsbury's Bank 2.8% rep APR (Nectar cardholders only, 2-3 years) Sainsbury's Bank* 2.9% rep APR** (Nectar cardholders only, 37mths-7 years)
	*Yorkshire / Clydesdale* 3% rep APR** (1-7 years)
	*Tesco Bank 3% rep APR**
	*The AA 3% rep APR (AA members only, 1-7 years) The AA* 3.1% rep APR** (1-7 years)
	*Post Office 3.1% rep APR** (1-7 years)
	*Zopa 3.1% rep APR**
Cheapest loans over �25,000 Want to find out if you'll get these loans? Use the Eligibility Calculator.
	Must have a First Direct current account First Direct 3.3% rep APR (loans between �25,000 and �30,000, 1-7 years, not in eligibility calc) Must have a First Direct current account First Direct 6.7% rep APR (loans between �30,001 and �50,000, 1-7 years, not in eligibility calc)
	*Tesco Bank 6.8% rep APR**
	*Yorkshire / Clydesdale* 6.9% rep APR**
	*Sainsbury's Bank 6.9% rep APR** (Nectar cardholders only, 2-3 years)
	First Direct now offers personal loans to its current account customers up to �50,000 and Sainsbury's Bank offers loans up to �40,000. Tesco Bank, Yorkshire Bank and Clydesdale offer up to �35,000. Though be very careful in getting a personal loan for such a large amount as it's a huge commitment. If you can't get this, you could combine loans, or remortgage, though that often means extending the term, more interest and securing the debt on your house.

The Loan Calculator

We've designed a unique calculator to help you work out the cost of your car loan. It'll tell you how much interest you'll pay, and how much you'll pay back per month. Try raising and lowering the number of months and see the effect on the monthly payment you need to make.

Personal Loans Calculator

Pick your question...

How much do you want to borrow? £

What's the annual interest rate (APR)? %

How long do you want to borrow for? months

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Personal loans Q&A

How can I make repayments as low as possible?

For this, find the loan with the lowest interest rate possible.

You can also lower the monthly payment by borrowing less � so paying a larger deposit from savings if you're able � or by choosing to take the loan over a longer time period. Do this and your monthly payment will be lower, though you'll pay more interest overall.

Another way to lower payments is to choose a cheaper car; the cheaper the car, the cheaper the repayments.
What if I want to pay off my loan early?

You can do this at any time. Some lenders allow you to do this penalty free, but most will charge you a fee to do this of between one and two months' interest.

To settle a loan early, call your lender and ask for a 'settlement figure'. This is the amount you have to pay to completely discharge the loan.
What happens if I miss a payment?

If you miss a payment, it's likely the lender will contact you to see if you just 'forgot'. If you keep missing payments, they'll mark you 'in default', which will appear on your credit file, likely preventing you from getting any further credit.

If you don't then get back on track, the lender can take you to court. This could involve anything from asking the court to allow bailiffs to come and take your car (or other assets you own to the value of the car), or it could ask for an attachment of earnings to pay the debt, or in the worst case, petition the court to make you bankrupt over the debt.

If you find you're not able to make repayments, always contact the lender before you default. If you can offer a credible repayment plan while you're in reduced circumstances, this is always better than ignoring the fact you've defaulted and hoping your lender just ignores it.
Do I get Section 75 cover with a loan deal? If not, do I have any protection?

No. Personal loans aren't covered under Section 75, as the lender pays the money to you, so there's no creditor-supplier relationship between the lender and the car dealer. However, if you're able to pay even a part of the deposit you put down using a credit card, then you would be covered, even if you then took out a loan to pay the rest of the balance.

If you have a complaint about a car bought using a personal loan, try to resolve it with the dealer. It has obligations under the Supply of Goods (Implied Terms) Act which means that it needs to make sure the car it's supplying is Fit for Purpose, As Described and lasts a Reasonable Length of Time.

Sadly, though, there's less protection if you're using the loan to buy a used car from a private individual. See Buying a Used Car for what consumer protection rules apply.
Will I be credit checked?

Yes. When you apply, a credit check will be done to see if the lender trusts you'll pay it back.

Likewise, if you fail to keep up repayments, this could leave a mark on your credit file, which could affect your ability to get a mortgage or other credit. See our Credit Scores guide for more info.
What if I need to borrow more than they'll lend?

Once you've applied for the loan, it's already on your credit file. So assuming you applied for the cheapest loan for you, then there's no point in not accepting that cash because it's not the amount of money you need.

The answer's relatively simple � just apply for another loan to fill the gap. If you haven't been turned down due to a credit score issue, this isn't likely to be too difficult.
What if there's a problem with the car?

If you buy a car using a loan and realise it's faulty, you'll need to take it back to the dealer, and ask it to repair the problem. The dealer has a responsibility under the Consumer Rights Act to ensure the car is as described and fit for purpose.

If there's something obviously wrong with the car, avoid taking delivery. If the fault develops later, contact the dealer and ask for a repair or replacement.

However, if you've bought from a private seller, then you've fewer rights, so ensure you take the car for a test drive before committing to buying it. Our Buying a Used Car guide can help with what you should be looking for.
What will happen if UK interest rates change?

Almost every personal loan is at a fixed rate, so the rate and repayments you are given at the outset are fixed over the life of the loan, regardless of what happens to the base rate. Thus there's no impact whatsoever, whether rates rise or fall.

But a change in the base rate will affect those looking to get a new loan, although it's not an exact relationship. As loans are borrowed over the long term, the rates lenders set depend more on the City's predictions of long-term interest rates rather than the actual UK base rate.
Is it harder to get a loan than it used to be?

Lenders have tightened borrowing criteria since the credit crunch. It's now comparatively more difficult to get a personal loan than it was before the crunch happened.

However, if you can get a loan, you'll benefit from historically low interest rates. Competition and cheap government money have driven rates down to unprecedented lows over the past few years.
How quickly will I get the money?

That depends on the lender. There are some which make a big play on giving you the cash instantly straight from a branch, though invariably you'll pay more. It's worth asking yourself whether the extra day's speed is worth paying a higher interest rate for the life of the loan.

Alternatively, some of the cheaper loans allow you to pay a delivery fee of around �50 to get the money quickly. This can be set as a default option, so be careful.