Unsecured Car Finance
Car finance is designed for those who can’t afford to buy a car outright. There are lots of different methods of financing available, some of which are secured on the vehicle while others are unsecured. Each has its own pros and cons, so you should consider all of your options before taking out credit.
Unsecured (Personal) Loan
Taking out a personal loan to pay for a car purchase will mean that the car is owned outright from the beginning. This type of loan can be used for new or used vehicles and can even be taken out to help cover the cost of insurance and maintenance also. Unsecured loans are not tied to the vehicle, so there is no risk of repossession if you’re unable to keep up with the repayments.
UK Credit Loans
UK Credit offers unsecured loans of between £3, 000 and £20,000 with APRs ranging from 19.9% to 29.9% and repayment terms of 3 to 10 years. You’ll know exactly how much you’ll be paying each month with our fixed-rate loans. An added benefit is that by making regular repayments, you could improve your credit rating, meaning that you could qualify for better loan rates in the future.
Pros and Cons of Unsecured Car Loans
✔ You own the car
✔ Accessible to those with poorer credit
✔ No risk of reposession
✗ Rates are often higher than other finance options
Types of Car Finance
Hire Purchase (HP)
Hire purchase is a way of financing a car in which the loan is secured against the vehicle. A deposit is normally required (usually around 10%), followed by fixed monthly repayments over a set length of time. Ownership of the car will be confirmed once the final payment has been made.
✔ You own the car (at the end of the agreement)
✔ Fixed repayments
✗ Monthly repayments may be high (especially for shorter agreements)
✗ The car could be repossessed if you miss payments
Personal Contract Purchase (PCP)
Personal contracts are similar to hire purchase, however; the monthly payments will be less than HP. This is because, instead of getting a loan for the full value of the car, the loan is for the difference between the current price, and the forecast value at the end of the agreement, based on agreed mileage. At the end of the agreement, ownership of the car will only be achieved with a final, balloon payment of the resale price. Otherwise, the car is handed back to the dealer.
✔ Lower monthly repayments
✔ Several options at the end of the agreement
✗ You don’t own the car (unless you make the balloon payment)
✗ You will have to pay more if you go over on your mileage agreement or if the car is damaged when you hand it back.
Personal Contract Hire (Leasing)
Leasing a car is a lot like PCP in that the buyer does not own the vehicle, but they make payments to lease the car over an agreed period. The payments are likely to be more than PCP, as the deal will usually include servicing and maintenance costs (providing a specified mileage is not exceeded). At the end of the agreement, you do not usually get the option to purchase, instead, the car is returned to the dealer.
✔ Fixed monthly repayments
✔ No surprise repair costs as service and maintenance are covered
✗ Usually requires a larger deposit (up to 12 months rental)
✗ Possible extra charges if you go over on mileage, or you want to end the deal early
It is worth noting that not all of these options will be available to everyone, so you should seek independent financial advice before taking out any new form of credit.