Loans are a popular type of car finance, particularly for those buying a used car. Before you take out a loan for your car purchase spend some time familiarising yourself with how a car loan works and make sure a loan is the best type of car finance agreement for your needs using the car finance decider tool.
What is a car loan?
A car loan is usually a personal loan. A personal loan is normally a fixed cost (Annual Percentage Rate, APR), fixed period loan of money to purchase any item you want - including a car. The facility is widely offered by banks, building societies, direct lenders and finance companies.
Unlike ‘secured’ motor finance agreements, such as hire purchase, personal loans are generally ‘unsecured’ which means that the finance is not secured against an asset – such as the car being bought. As such, you, not the finance company, will be the outright legal owner of the car.
How car loans work:
Personal loans are normally regulated under the Consumer Credit Act (CCA). The minimum and maximum loan amounts are determined by the individual lenders and will vary depending on your credit worthiness. The APR that you are offered will reflect your credit record and the results of the lender’s risk assessment.
Ending the car loan agreement
You can settle a personal car loan at any point in the contract by settling the outstanding balance with the lender. Contact your lender for further information. A personal loan agreement will naturally end when all repayments have been made over the duration of the agreement..
Lenders will disclose all additional fees and charges that may apply in the terms and conditions of your loan before your agreement starts.