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Cheap Personal Car Loans

Borrow at 2.7% for £7.5k+

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Helen S | Edited by Johanna

Updated July 2018

personal car loan

A personal loan is one of the cheapest ways to buy a car, especially as rates have plummeted in the last few years. But is it the right way to buy a car for you?

This guide looks at the basics of buying a car with a personal loan, including how these loans work and the pros and cons of using one to buy a car. We also tell you the cheapest loan providers.

This is the first incarnation of this guide. Please suggest any changes or ask questions in the cheap car loans discussion.

Not the car finance option you were looking for? Check these out...
PCP Hire purchase Leasing Buying a car with a credit card

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...


car hire

How does it work when buying a car?

personal loans

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)? % This is the cost of your loan. To help you calculate, best buy APRs for common loan amounts include:
£1,000-£1,999: 8% to 20%
£2,000-£2,999: 8% to 19%
£3,000-£4,999: 8% to 13%
£5,000-£7,499: 3.6% to 9%
£7,500-£15,000: 2.9% to 7%
£15,001-£25,000: 3.2% to 8%


How long do you want to borrow for? months You can usually choose to borrow over 12 to 60 months (1 to 5 years). If you choose a shorter loan, you'll have a higher monthly payment, but will pay less in interest. A longer loan generally means a lower monthly repayment, but you'll pay more in interest as you're borrowing over a longer period of time.





Just want to see the best buys?

Personal loans Q&A

  • How can I make repayments as low as possible?

  • What if I want to pay off my loan early?

  • What happens if I miss a payment?

  • Do I get Section 75 cover with a loan deal? If not, do I have any protection?

  • Will I be credit checked?

  • What if I need to borrow more than they'll lend?

  • What if there's a problem with the car?

  • What will happen if UK interest rates change?

  • Is it harder to get a loan than it used to be?

  • How quickly will I get the money?

Get Our Free Money Tips Email!

For all the latest deals, guides and loopholes - join the 12m who get it. Don't miss out