Personal Loans for Car Finance
Buying a vehicle is a life goal for many individuals. There are many ways you can make a car your own even if you don’t have adequate savings. Lenders like banks and building societies provide car finance options to help people take a step towards their dreams. While there are secured loans available to purchase a car, unsecured personal loans are a cheaper option that doesn’t carry as much risk as a secured loan. This means that if you can’t repay the loan, the lender cannot take away your car.
What is a Personal Loan?
A personal loan is a short term loan that is lent on the basis of your creditworthiness, in other words, your credit score. Thus, the people with good credit scores often manage to get the best deals on personal loans for car finance. For buyers that don’t want to risk their car, this is a great option. As it doesn’t require your asset, you can be at ease that your car is going to be there with you. However, this doesn’t mean you can make payments as and when you wish. You have to make timely principal and interest payments. Being negligent with your repayments on a personal loan you’ve taken can have unpleasant consequences.
How does a Personal Loan work as a Method of Car Finance?
If you don’t want to go for a secured loan yet wish to buy a car at low risk, personal loans are the best method of car finance. You may wish to buy a used or new car, that’s totally upto you. Once you find a car you like that is on sale, you’ll enquire about its price and eventually work out how much amount you’ll need to borrow. This depends on two things- the price of the car you want to borrow and the amount you’ve saved up. The more deposit you can afford to pay, the less you want to borrow. When you take an unsecured loan for the purpose of car finance, you’ll likely repay it by fixed monthly payments over a period of 1-5 years. Rates vary with the amount you wish to borrow. If you’re borrowing less, for example, £2000, you may get as high an interest rate as 12%. If you’re borrowing more, for example, £20,000, you may get it as cheap as 2.5%.
Will I get the Interest Rate mentioned in the lender’s advertisement?
When you apply for a personal loan with a lender, you can use it any way you want- also as a cheap option of car finance. A thing called Annual Percentage Rate (APR) determines the interest rate plus fees. Every lender advertises an APR which is representative. That is, only about 50% of the successful applicants get the best and lowest rates. You may get the interest rate that a lender offers in their advertisement. It may also be that get a higher interest rate. A personal loan comes with a cooling-off period. This starts either from the date you sign the loan agreement or from the time you receive a copy of it- whichever is later. In case you cancel, you’re given about a month’s time to repay the capital including interest. You should always work out whether you can afford the monthly payments. There are household expenses that need to be taken care of as well as a part that goes towards savings.
Do too many Applications for a Personal Loan damage my Credit Score?
Unsecured loans are given without any collateral. Therefore, it’s a risky business for lenders. Because you aren’t attaching any asset, the lender will run a search on your credit file to ascertain the risk. Too many lenders looking through your credit history might have a negative effect on your credit score. So you shouldn’t blindly apply to each and every lender. It’s wise to apply only where you think you have a chance.
Do I have to pay early repayment penalty?
Some lenders impose a penalty on those to wish to pay off their personal loan early as it’s a special privilege. You’ll mostly have to pay one or two months’ interest, though some lenders may waive it off as an attractive incentive.
What are the Pros of taking out a Personal Loan for Car Finance?
The greatest benefits of personal loans are probably their unsecured nature, low risk and use for any purpose- even as means of car finance. Some of the other pros of personal loans are
- It’s simple to arrange and understand. It can be arranged quickly over face-to-face, internet or phone.
- The terms of a personal loan are flexible. This is usually from a period of one year to seven years. However, the longer the term, the more interest you’ll have to shell out.
- An eligibility calculator will help you judge the best lender and deal for financing your new car.
- As soon your dealer gets the cash, the car will be legally yours. This means you now have the power to modify it any way you want. You might want to upholster the seating or add some new car accessories. You can also sell it if you fall into financial difficulty.
- As you’re paying cash upfront to the dealer, you may be able to strike a bargain at the time of sale of the car.
- Personal loan rates are usually cheaper than dealer finance.
- You can take out a loan to either cover the whole price of the car or a part of it.
- If you have a good credit rating, shopping around would mean a low and fixed interest rate.
- The loan period is of your choice. It can be 12 months or can go upto 36 months.
What are the Cons of taking out a Personal Loan for Car Finance?
Personal loans have a few drawbacks too. They are
- In the absence of a good credit rating, getting a personal loan is a task in itself.
- Monthly payments may be higher than for other forms of car finance.
- Owning your car means also paying for all repairs from your pocket.
- Car is an asset that depreciates, so it’ll reduce in value over time.
- Getting approval may take some time, although some lenders guarantee approval within 24 hours.
Overall, personal loans are a great way to own your car and not worry about repossession in case of defaulting repayments.
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