What is a personal loan?
A personal loan is where you borrow a fixed amount and choose how long you want to borrow it for. Not exclusive to car purchases, you can use a personal loan to help you spread the cost of any big expense, such as a TV, bills, home improvements and more.
When you use a personal loan to purchase a car, you would source the loan from a third party and use it to pay for the car at the dealership. With this car finance option you’ll own the car and can sell it at any time.
How personal loans work
- Borrow a fixed amount
- Pay it back, with interest, in monthly instalments
- You own the car from the moment the dealer receives payment
Benefits of a personal loan:
- Own the car - from the moment the dealer receives payment
- Sell the car - at any time
Things to consider with a personal loan:
- These forms of loan can have higher interest rates than others
- The interest rate can reduce the more you're looking at borrowing
- You may be tempted to take out more money than you need
- In some cases the interest may be all forward loaded
Personal loans with poor credit history
If you have a poor credit history, then you are less likely to be accepted for a personal loan. You'll also find that with some of the other options, thorough checks are carried out to ensure that the dealership can be trusted, but this won't happen with a personal loan. So, you've got to do your own research and be sure they are a reputable dealer before you make a purchase.
Loan not secured against your car
It is important to keep in mind that this loan is not secured against the vehicle, such as with the other options on this list. What this means is that you can sell the car, without permission from your finance company, if this is something you want to do at any point. It works the same way as if you took out a personal loan to buy a TV essentially. You just need to make sure that the repayments are being kept up with if you do this.
Same monthly repayments
One of the biggest advantages of a personal loan is that the car can’t be repossessed at any time. As well as this, your monthly repayments are going to stay the same, meaning that you can budget better than you would be able to with a different type of finance. And finally, as you have already secured the finance, you are going to be in a better position to negotiate the price of the vehicle!