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.

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.

MoneySavingExpert.com
Borrowing
Car Finance
Cheap Personal Car Loans

Cheap Personal Car Loans

Borrow at 2.8% for £7.5k+

Helen Saxon | Edited by Johanna Noble

Updated 6 May 2020

Almost all lenders have tightened acceptance criteria in light of coronavirus, with some stopping applications or increasing rates. Yet if you NEED to borrow, our guide has full info on what to watch out for, a list of best buys, plus our Loans Eligibility Calculator helps you find which lenders are most likely to accept you.

In this guide

What is a personal loan?
Is a personal loan the right option for me?

Where are the best buy loans?
- - Cheapest loans under £5,000
- - Cheapest loans over £5,000
Coronavirus help if struggling with an existing loan
Loans Q&A

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 more 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 always 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 a low loan rate, in the above example you'd pay £684 in interest over the life of the loan.

Pay some of the deposit with a credit card - it'll give you protection

If you have a credit card, pay even a penny of the deposit on it and you'll get powerful Section 75 protection (provided the car costs between £100 and £30,000, though most would). The credit card provider is then jointly liable with the car dealer should anything go wrong, so means it should be a lot easier to sort out any issues with the car further down the line.

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?

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?

Important: Some lenders ask that you go via our eligibility calculator, not direct

We've agreed to remove direct links to most lenders from this guide. Instead you'll be directed to our Loans Eligibility Calculator (for lenders that let you check eligibility) to check your acceptance odds for many of the cheapest loans, minimising applications and protecting your credit score.

Some lenders requested this so only those more likely to be accepted will actually click the 'apply' button, reducing demand and enquiry calls, as they're already over capacity and need to prioritise coronavirus help for vulnerable people.

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.

Cheapest loans under £3,000

As we warn above, while you should only borrow what you NEED, a peculiar quirk means you can sometimes pay less by getting a slightly bigger loan. Rates of loans under £3,000 are the most expensive, so always check if it's actually cheaper to borrow slightly more. Specialist Money Transfer credit cards are also far cheaper than the loans below, if you can repay the full balance over 12-18mths.

Cheapest loans £1,000 - £1,999: from 12.3%

LENDER	REP APR (1-5 years)	HOW TO APPLY
Important. Specialist Money Transfer credit cards are far cheaper than the loans below.
AIB (NI)	12.3% rep APR	Apply direct to lender (not in eligibility calc)
Cahoot	13.5% rep APR	Apply via eligibility calculator
Santander	13.5% rep APR	Apply via eligibility calculator

See all official APR examples.

Cheapest loans £2,000 - £2,999: from 12.3%

LENDER	REP APR (1-5 years)	HOW TO APPLY
Important. Specialist Money Transfer credit cards are far cheaper than the loans below.
AIB (NI)	12.3% rep APR	Apply direct to lender (not in eligibility calc)
Hitachi	13.4% rep APR (£2,500-£2,999 only, 2-5 years)	Apply via eligibility calculator
Cahoot	13.5% rep APR	Apply via eligibility calculator

See all official APR examples.

Cheapest loans £3,000 - £4,999

LENDER	REP APR (1-5 years or stated)	HOW TO APPLY
Important. Specialist Money Transfer credit cards are far cheaper than the loans below, provided you can get a credit limit big enough.
Hitachi	8.4% rep APR (2-5 years)	Apply via eligibility calculator
Tesco Bank	8.5% rep APR (1-7 years)	Apply direct to lender (not in eligibility calc)
AA	8.8% rep APR (AA members) 8.9% rep APR (Non-members)	Apply via eligibility calculator
Post Office	8.9% rep APR	Apply via eligibility calculator

See all official APR examples.

Cheapest loans £5,000 - £7,499

LENDER	REP APR (1-5 years or stated)	HOW TO APPLY
Tesco Bank	3.4% rep APR (1-3 years)	Apply direct to lender (not in eligibility calc)
MBNA	3.5% rep APR	Apply via eligibility calculator
John Lewis	3.6% rep APR	Apply direct to lender (not in eligibility calc)

See all official APR examples.

Cheapest loans £7,500 - £15,000

LENDER	REP APR (1-5 years or stated)	HOW TO APPLY
Cahoot	2.8% rep APR	Apply via eligibility calculator
M&S Bank	2.9% rep APR (1-7 years)	Apply via eligibility calculator
John Lewis	2.9% rep APR	Apply direct to lender (not in eligibility calc)
MBNA	2.9% rep APR	Apply via eligibility calculator

See all official APR examples.

Cheapest loans £15,001 - £20,000

LENDER	REP APR (1-5 years or stated)	HOW TO APPLY
Cahoot	2.8% rep APR	Apply via eligibility calculator
Tesco Bank	2.9% rep APR (1-3 years)	Apply direct to lender (not in eligibility calc)
MBNA	3% rep APR	Apply via eligibility calculator
Yorkshire Bank	3.2% rep APR (1-7 years)	Apply via eligibility calculator
Clydesdale Bank	3.2% rep APR (1-7 years)	Apply via eligibility calculator

See all official APR examples.

Cheapest loans £20,001 - £25,000

LENDER	REP APR (1-5 years or stated)	HOW TO APPLY
Tesco Bank	2.9% rep APR (1-3 years)	Apply direct to lender (not in eligibility calc)
MBNA	3% rep APR	Apply via eligibility calculator
Yorkshire Bank	3.2% rep APR (1-7 years)	Apply via eligibility calculator
Clydesdale Bank	3.2% rep APR (1-7 years)	Apply via eligibility calculator

See all official APR examples.

Cheapest loans over £25,000

Important. Certain lenders offer personal loans up to £50,000, though it's a huge commitment, so think very carefully before getting such a large amount. Be VERY sure you can repay it.

If you do plan to borrow, first check with your own bank, as cheap rates for such large borrowing are often for existing customers only. If your bank can't help, next look at the cheapest open market rates.

LENDER	REP APR (£25k-£35k, 1-5 yrs or stated)	HOW TO APPLY
First Direct	3.3% rep APR (£25k-£30k, 1-7 years) 6.7% rep APR (£30k-50k, 1-7 years)	Apply direct to lender - Existing custs only (not in eligibility calc)
Halifax	5.8% rep APR	Apply direct to lender - Existing custs only (not in eligibility calc)
Yorkshire Bank	6.9% rep APR (1-7 years)	Apply direct to lender (not in eligibility calc)
Clydesdale Bank	6.9% rep APR (1-7 years)	Apply direct to lender (not in eligibility calc)

See all official APR examples.

If the above doesn't work, you could combine smaller personal loans or remortgage, though that usually means extending the term, more interest and securing the debt on your house.

Coronavirus help if you're struggling

If you're struggling to pay an existing loan due to coronavirus, your provider should give you a payment holiday of up to three months, or offer an alternative way to help.

DON'T just stop paying – you must arrange a break with your lender first (you've until 31 October to request it). Provided you've agreed it with your lender, these payment holidays then can't hurt your creditworthiness and won't come with any penalties or charges.

You'll still be charged interest during the payment holiday though, so will likely pay more overall. It's therefore best to only do this if you need to – if you can afford to pay, it's better to keep doing so.

If you have a loan from a peer-to-peer lender, such as Zopa or Ratesetter, the measures above don't currently apply, so it's down to each company to determine the help it offers. See our lender-by-lender loans help for the latest updates, full information and how to apply.

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 Q&A

Join the MSE Forum Discussion

Cheap personal car loans

SPOTTED OUT OF DATE INFO/BROKEN LINKS? EMAIL: BROKENLINK@MONEYSAVINGEXPERT.COM

What the * means above

If a link has an * by it, that means it is an affiliated link and therefore it helps MoneySavingExpert stay free to use, as it is tracked to us. If you go through it, it can sometimes result in a payment or benefit to the site. It's worth noting this means the third party used may be named on any credit agreements.

You shouldn’t notice any difference and the link will never negatively impact the product. Plus the editorial line (the things we write) is NEVER impacted by these links. We aim to look at all available products. If it isn't possible to get an affiliate link for the top deal, it is still included in exactly the same way, just with a non-paying link. For more details, read How This Site Is Financed.

MoneySupermarket.com Financial Group Limited is authorised and regulated by the Financial Conduct Authority (FRN: 303190). The registered office address of both MoneySupermarket.com Group PLC and MoneySupermarket.com Financial Group Limited (registered in England No. 3157344) is MoneySupermarket House, St. David's Park, Ewloe, Chester, CH5 3UZ. MoneySavingExpert.com Limited is an appointed representative of MoneySupermarket.com Financial Group Limited.