It is estimated that about four in ten personal loans availed in UK are for buying cars. After house, purchasing a car is considered as a major investment by many. While many are able to drive away with a brand new car, some others are contended with a used car. In the past only those who possessed ready cash could buy an expensive car, but the situation has definitely improved today, with the arrival of car loans.



Depending upon the cost of the car and your repayment capacity, many kinds of financing options are available in the car market. You may buy it directly from the manufacturer, you may avail a car loan from your bank, you may find it at an auction place or you may contact a car dealer. Garages are also an option. Supermarkets also have cars on sale. Then there are friends, relatives or neighbors who may be selling their car. And if you're not so sure there are specialists out there willing to offer their service.

One such option is PCP or personal contract purchase in which an initial deposit is submitted initially followed by monthly installments. At the end of the contract period, the final lump sum amount is paid and the car becomes solely yours. You can also switch over to another car and continue making repayments or simply return the car to the owner. But be careful- since you don't own the car during the contract period, so any default in repayments and the car may be repossessed. The second option is Hire Purchase (HP). This is almost similar to a bank loan in which you pay monthly repayments for a fixed time period and at the end of the agreement the car is yours. Contract Hire financing gives any business the freedom to lease out new cars without buying them.

Any one with a good credit report can easily get standard bank loan and it gives you the freedom to purchase your car from anywhere. Direct lending is also possible with financing companies and credit unions. Secured car loans may require you to pledge your property against the loan amount. Unsecured loans do not involve pledging any property. One may get up to 20,000 under this scheme. Bad credit car loans are available at higher interest rates with private dealers and financing companies. But they may require you to buy car from a certain dealer. The most common type of car financing involves the dealer and the buyer. A contract is fixed and the buyer agrees to pay the amount financed plus interest for a fixed period. The dealer usually sells the dealership to a bank or financing company which then manages the repayments. Online car loans are also becoming a popular option among many who want a hassle free deal in the comforts of their home.

All of the above options have many merits as well as draw backs. While a PCP loan keeps your monthly payments lower than a personal loan; a personal loan has the lowest annual percentage rate (APR) among various car finance options and doesn't have any arrangement fees. The disadvantage with HP is that you don't own the car during the hire period.

So, how can you ensure yourselves to sort out the best car finance option? Simply shop around. Extend your search beyond your bank. Many online financiers have car loan calculators for comparing various deals. Know in advance the interest that you will be paying. Get the terms and conditions in written form. Go online with a specialist broker if you are in doubt, all these with your repayment capacity in mind.