If you're looking to upgrade to your dream car but need to borrow a little extra, we explain your options.
A new car can be an expensive purchase, with finance plans offered by car dealers often charging extortionate rates of interest. However, by financing the purchase of a new car through an independent car loan specialist, you are likely to be offered a more reasonable interest rate with repayments spread over a term of your choice, enabling you to upgrade your vehicle affordably.
There are two main types of loans which can be used to purchase a new car; specialist car loans (where the loan amount is secured against the car rather than your house) and regular personal loans (where you simply choose to spend the borrowed funds on a new car).
The majority of companies offering regular secured or unsecured personal loans will be willing to lend funds to contribute towards the purchase of a new car. However, specially tailored car loans are also available and these are often accompanied by a degree of repayment flexibility and other features which are more beneficial to the purchase of a car. These features may include the ability to defer repayments (giving the option of lower initial payments followed by a lump sum payment at the end of the loan term), cashback on the vehicle, direct payment to the car dealer and enhancements such as vehicle checks or breakdown service membership.
Whether you choose a specialist car loan or a regular personal loan the monthly repayments are likely to be based on a percentage of the total loan amount spread evenly over the loan term coupled with interest payments. The interest rate applied will be dependent on your personal circumstances, the amount borrowed and for specialist car loans, may depend on the vehicle being purchased. Additionally, just as homeowner loans are secured on the borrower's property, car loans may be secured on the vehicle purchased and if repayments aren't met it may be reclaimed.
The majority of car loan specialists do not place restrictions on the dealers or type of car purchasable with the loan funds, however it is always best to check as some impose restrictions specifying that you are only eligible for a car loan if you agree to purchase the car from a particular source. It is also important to check whether payment protection insurance or gap insurance is automatically included with the monthly loan amount or whether they are optional extras.
Payment protection insurance is designed to cover the loan repayments if you are unable to meet them due to sickness or unemployment, whereas gap insurance is designed to pay out if the amount granted by your insurance company in the event of your car being stolen or written off in an accident is not sufficient to replace the car. Both types of insurance can be useful accompaniments, simply to provide reassurance that if the unforeseen did happen you would not loose your car, however they do usually come at an additional cost.
By comparing the features and monthly repayments offered by different car loan specialists as well as checking whether there are any arrangement fees imposed, regardless of your circumstances you should be able to borrow an amount sufficient to purchase your new vehicle, with repayments that suit your lifestyle.
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