Cheap Personal Car Loans

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.