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Cheap personal car loans

Borrow at 5.6% for £7.5k+

Helen Saxon
Helen Saxon | Edited by Johanna Noble
Updated 24 July 2023

Personal loan rates have risen slightly in recent months, but they're actually still quite low. They're one of the cheapest ways to buy a car, so if you know what you're doing, go straight to our Loans Eligibility Calculator to find which lenders are most likely to accept you. But if you need more help, our guide has full info on how personal car loans work, whether other car finance could work out better and the best-buy loans.  

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In this guide

Not the car finance option you were looking for? Check these out...

Personal contract purchase | Hire purchase | Car leasing

What is a personal loan?

Personal loans, also known as unsecured loans, are where you borrow a sum of money from a lender, and agree to pay it back over a set period of time, in fixed monthly repayments.

If you're buying a new or used car and NEED to borrow (for example, your car is a wreck and must be replaced yet you don't have enough in savings to cover it and can't wait until you would) a personal loan can be a cheap way to do so, as rates are currently close to all-time lows. 

Once you've found a car you want to buy, you'll know the amount you want to borrow. Ideally this should be based on the price of the car minus any amount you have in savings to contribute, minimising the amount you need to borrow.

The lender will charge you interest as its fee to lend money to you, so you repay the amount you borrowed plus interest. The advantage is you get cash upfront, but can spread the cost of a purchase over time – you usually repay over a period of one to five years.

The fixed interest rate you get will depend on how much you want to borrow and other factors such as your credit score. Note that these rates are 'representative examples', meaning only 51% of successful applicants have to get the rate that's advertised. So you could apply and be offered a more expensive rate.

We list the cheapest rates below and our eligibility calculator will show you not only which loans you've the best chance of getting, but for some it'll reveal whether you'll get the advertised rate, in your own personal best-buy table.

Once you're accepted for a loan, the cash is usually deposited into your nominated bank account, so you're then able to transfer the money over to the dealer to pay for your car. You can drive away that day as the new owner of that car.

Pay just a penny with a credit card to get greater protection

If the seller accepts credit card, pay even a penny towards the car on it and you'll get powerful Section 75 protection (provided the car costs between £100 and £30,000). 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 you've made all the repayments, that's it. The lender marks the loan as settled on your credit file, and you have nothing left to pay.

Alternative types of car finance to consider

This guide focuses on personal loans, though before you go on, do check these alternative types of car finance to assess if they'd suit you better. 

Broadly speaking, there are six different ways to pay for a car. The table has the key differences at a glance, before we run through the alternatives to a loan in more detail.

Comparing ways to finance a car purchase

Finance type Typical length of agreement? Initial deposit required? Who owns the car? Mileage restrictions?
None – cash savings N/A N/A You No
0% credit card Up to 23 months No You (though you'll still need to repay the debt) No
Personal loan Usually 1-7 years No You (though you'll still need to repay the debt) No
Personal contract purchase Usually 1-5 years Yes (i) The finance company, unless an optional final balloon payment is made Yes
Hire purchase Usually 1-5 years Yes (i) The finance company, until the final repayment is made, then you No
Leasing/personal contract hire Usually 1-4 years Yes (i) The finance company, at all times Yes

(i) In most circumstances, though sometimes you can get a deposit contribution from the dealer or structure a lease deal to pay nothing upfront.

Sadly, there's no 'one-size-fits-all' answer to which way of financing a car is best (as much hangs on whether you want to own the car and other factors). However, we've included more information on each alternative to a personal loan below, to help work out which is right for you.

  • Cash savings – the cheapest option for most cars

    The clear winner if you want to own the car fully from day one, as you'll avoid paying any interest or taking out debt. Though if you're looking to buy a brand new car – which on average loses about 40% of its value by the end of the first year – and are likely to change it in the next few years, it's worth considering a leasing or personal contract purchase deal below. With these, the overall cost of ownership can work out cheaper.
  • 0% spending credit card – no interest if you can get a big enough credit limit (and the dealer accepts cards)

    Depending on the price of your new car, a 0% spending credit card could be the next cheapest way to borrow. Like paying in cash, you'll own the car outright, plus you'd be covered by Section 75 protection. However, you'd need to check whether the car dealer accepts payment by credit card, as not all do.

    Unfortunately you usually won't know what credit limit you'll get before applying, and you should budget to pay the debt off before the 0% period ends, as the interest rate rockets after then. The longest cards typically offer up to 23 months at 0% – see our 0% spending cards guide for more information.
  • Hire purchase (HP) – an option to consider if you're struggling to get a cheaper loan, though the lender owns the car until you fully repay

    This works in a similar way to a loan – as you're borrowing and paying off the full cost of the car – though here you won't own it until you've made the final payment. Instead the car is owned by the finance company as it uses it as security against the loan (like a mortgage), so if you fail to pay, it can seize the car.

    This can mean HP is easier to get than normal loans, though you'll usually need to pay a deposit (often 10% or more of the car's price). You'll therefore need to consider how to fund that. However, if you're buying a brand new car from a dealer, it's worth checking if it offers a promotional contribution towards this.

    As the dealer will be making money from the finance deal, you may find it offers larger discounts or contributions to the deposit on new cars. For used cars, it may mean you can haggle more off the sale price. Always be careful and make sure to calculate the total amount you'll need to repay after all interest has been added. This will then show the 'true' value of the discount. See our full Cheap hire purchase guide for more information.

  • Personal contract purchase (PCP) – can be good if you want to get a new car every few years, otherwise a hefty final payment and often more expensive overall than a loan

    This is a popular way to get a new car, especially if you frequently change car and want to pay for it monthly. It's basically a loan, though usually cheaper each month as you won't be paying off the full value of the car. You also won't own it at the end, unless you choose to.

    You set a term for the agreement and pay a deposit (for example, a three-year term with a £2,000 deposit). The finance company then provides a final value that the car will be worth at the end of the agreement (for instance, £6,000). These are then subtracted from the cost of the car to work out how much the loan will be (for example, you'd owe £12,000 over three years for a £20,000 car).

    There's usually a mileage allowance (for instance, 8,000 miles a year), but provided you stick to that and don't damage the car, you can return it and walk away at the end of the agreement. Alternatively, you have the option to pay the final value to own it, also known as a balloon payment.

    As the dealer will be making money from the finance deal, you may find it offers larger discounts or contributions to the deposit on new cars. For used cars, it may mean you can haggle more off the sale price. Always be careful and make sure to calculate the total cost you'll need to repay after all interest has been added. This will then show the 'true' value of the discount. See our full guide on cheap personal contract purchase for more information.

  • Car leasing/personal contract hire (PCH) – low monthly rental payments, but you'll never own the car (nor have the option to)

    This is a way to get a brand new car for a monthly payment, though this is essentially a long-term rental, so you'll never own the car – nor have the option to buy it. Instead you'll pay an initial deposit followed by a monthly amount for the duration of the contract, which is usually over one to four years.

    As with PCP, you'll need to choose a mileage allowance (for example, 8,000 miles a year) and you're responsible for the car's upkeep. At the end of the agreement, you simply return the vehicle (though you could be charged if you've exceeded the mileage or damaged it). See our Cheap car leasing guide for full help.

 Loans Eligibility Calculator

See which loans you've the best chance of getting, in your own personal best-buy table.

Usually, applying is the only way to know if you'll be accepted for a loan. Yet that marks your credit file, affecting your ability to get future credit. To help, our loan calculator uses a 'soft search' to find your chances of acceptance before you apply.

Check your chance of acceptance

Where can I get a loan?

If you're looking for a loan, check out the best-buy rates below, though 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 will also depend on your credit score, with the cheapest often for those with better scores. See our Credit scores guide for full information on how to check yours for free, including help and tips to boost it.

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.

Important. For loans up to £5,000 you could be much better off using a money transfer credit card if you can repay the full balance over 9-14 months.

Cheapest loans £1,000 - £1,999

LENDER RATE 
(1-5 years or stated) 		CHECK ELIGIBILITY + APPLY
Representative rate. At least 51% of those accepted must get this rate, others can be charged more.
AIB (NI) 12.3% rep APR Newbies must apply by phone 
(not in our eligibility calc)
Santander 14.5% rep APR  Check eligibility
Apply*
M&S Bank 14.9% rep APR (1-7 years) Check eligibility
Apply*

See all official APR examples.

Cheapest loans £2,000 - £2,999

LENDER RATE
(1-5 years or stated) 		CHECK ELIGIBILITY + APPLY
Representative rate. At least 51% of those accepted must get this rate, others can be charged more.
AIB (NI) 12.3% rep APR Newbies must apply by phone 
(not in our eligibility calc)
Novuna Personal Finance £2,500-£2,999: 14.4% rep APR (2-5 years) Check eligibility
Apply*
Santander 14.5% rep APR Check eligibility
Apply*

See all official APR examples.


Cheapest loans £3,000 - £4,999

Cheapest loans £3,000 - £4,999

LENDER RATE
(1-5 years or stated) 		CHECK ELIGIBILITY + APPLY
Representative rate. At least 51% of those accepted must get this rate, others can be charged more.
Novuna Personal Finance £3,000-£3,999: 9.9% rep APR
£4,000-£4,999: 9.7% rep APR 
(Both 2-5 years)		 Check eligibility
Apply*
M&S Bank 9.9% rep APR (1-7 years) Check eligibility
Apply*
AA 10.6% rep APR (AA members)
OR
10.7% rep APR (non-members)
 Check eligibility
Apply*

See all official APR examples.


Cheapest loans £5,000 - £7,499

Cheapest loans £5,000 - £7,499

LENDER RATE
(1-5 years or stated) 		CHECK ELIGIBILITY + APPLY
Representative rate. At least 51% of those accepted must get this rate, others can be charged more.
AIB (NI) 5.6% rep APR Newbies must apply by phone 
(not in our eligibility calc)
Santander 7.2% rep APR Check eligibility
Apply*
AA 7.2% rep APR (AA members)
OR
7.3% rep APR (non-members)		 Check eligibility
Apply*

See all official APR examples.


Cheapest loans £7,500 - £15,000

Cheapest loans £7,500 - £15,000

LENDER RATE
(1-5 years or stated) 		CHECK ELIGIBILITY + APPLY
Representative rate. At least 51% of those accepted must get this rate, others can be charged more.
AIB (NI) 5.6% rep APR Newbies must apply by phone 
(not in our eligibility calc)
Santander 5.8% rep APR Check eligibility
Apply*
Sainsbury's Bank 5.8% rep APR (1-7 years)
Must have a Nectar card		 Check eligibility
Apply*

See all official APR examples.


Cheapest loans £15,001 - £20,000

Cheapest loans £15,001 - £20,000

LENDER RATE
(1-5 years or stated) 		CHECK ELIGIBILITY + APPLY
Representative rate. At least 51% of those accepted must get this rate, others can be charged more.
AIB (NI) 5.6% rep APR Newbies must apply by phone
(not in our eligibility calc)
Sainsbury's Bank 5.8% rep APR (2-7 years)
Must have a Nectar card		 Check eligibility
Apply*
Santander 5.9% rep APR Check eligibility
Apply*

See all official APR examples.


Cheapest loans £20,001 - £25,000

Cheapest loans £20,001 - £25,000

LENDER RATE
(1-5 years or stated) 		CHECK ELIGIBILITY + APPLY
Representative rate. At least 51% of those accepted must get this rate, others can be charged more.
AIB (NI) 5.6% rep APR Newbies must apply by phone
(not in our eligibility calc)
Santander 5.9% rep APR 
 Check eligibility
Apply*
Sainsbury's Bank 5.9% rep APR (2-7 years)
Must have a Nectar card		 Check eligibility
Apply*

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.

1. You need to be an existing customer to qualify for these loans

LENDER RATE
(1-5 years or stated) 		APPLY
Representative rate. At least 51% of those accepted must get this rate, others can be charged more.
First Direct
 £25k-£30k: 6.4% rep APR (1-8 years) Apply 
(not in our eligibility calc)
£30k-£50k: 6.9% rep APR (1-8 years)
NatWest/RBS/Ulster Bank £25k-£35k: 8.4% rep APR (1-8 years) Check eligibility (NatWest)
Apply to NatWest*, RBS or Ulster Bank
£35k-£50k: 9.9% rep APR (1-8 years) Check eligibility (NatWest)
Apply to NatWest*, RBS or Ulster Bank

See all official APR examples.

2. The top open market loans over £25,000

LENDER RATE
(1-5 years or stated) 		APPLY
Representative rate. At least 51% of those accepted must get this rate, others can be charged more.
Sainsbury's Bank £25k-£40k: 7.1% rep APR (2-7 years)
Must have a Nectar card, not open to anyone self-employed		 Check eligibility
Apply*
Tesco Bank £25k-£35k: 7.2% rep APR (1-7 years)
Must have a Clubcard		 Check eligibility
Apply*
AA £25k-£40k: 8.4% rep APR (AA members)
OR
8.5% rep APR (non-members)
(Both 4-7 years)		 Check eligibility
Apply*
Bank of Ireland £25k-£40k: 8.5% rep APR (4-7 years) Check eligibility
Apply*
Post Office £25k-£40k: 8.5% rep APR (4-7 years) Check eligibility
Apply*

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 home.

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Personal loans Q&A

  • What factors can affect my loan amount and repayments?

    The amount you'll be able to borrow will vary between lenders, with factors such as your income and credit history used to determine how much a lender will offer you (if at all).

    Before comparing loans, always check your credit history to make sure there are no mistakes and all the information is correct. There are also easy things you can do to improve it if it's not in a great shape. See Check your credit report for free and how to improve your credit score for full help and top tips. 

    You can then use our loans eligibility calculator to see your chances of acceptance for many lenders. You can then play around with the amount you're looking for, plus the length of time you want to repay it to see how that changes your results.

    A longer term will mean lower monthly repayments, however you'll pay more in interest over the course of the loan. Always aim to repay debt as quick as you can, to minimise the cost as much as possible.  

  • 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 to – 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 it penalty-free, but most will charge you a fee, 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 clear the loan.

  • What happens if I miss a payment?

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

    If you find you're not able to make repayments, always contact the lender – ideally before the next payment is due. If it knows you're struggling, it should help you by offering an alternative and affordable repayment plan.

    If you don't let it know, and continue to miss payments, 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 in the worst case, ask the court to make you bankrupt over the debt.

  • 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 car's cost using a credit card, you would be covered, even if you then used a loan to pay the rest.

    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 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.

    Unfortunately 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, the lender will credit-check you to work out whether to trust you to 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 report. So assuming you applied for the cheapest loan for you, there's no point in rejecting the money as it's not the amount you need. 

    You may be able to apply for another loan elsewhere to fill the gap, though the new lender will take your loan into account when deciding, and may decide that you can't afford the extra borrowing.

  • 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, 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 (the Bank of England's official borrowing rate). So 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?

    This depends on the lender. If it's an online application, which you can sign digitally, you could have the cash within a couple of hours. 

    If you need to wait for the lender to send documents in the post, it could take up to a week.

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