A Car Loan is a type of personal loan which allowes you to get a car now and to pay for it over an extended period of time although the total cost is going to be higher in the end as, on top of paying off the amount borrowed, you will also have to pay interest. As a rule, this is organized in the form of monthly repayments which consist of a small part of the loan itself plus the interest charge.

As any personal loan, a car loan can be a secured or an unsecured one. For a secured loan it is necessary to put up a collateral – an item of property which is usually a car itself, although some lenders require this item to be your house. This last one is tricky and think twice before signing up for it – and if eventually you do, make absolutely sure that you are able to repay your debt exactly as it is specified in the loan contract, otherwise you are running the risk of losing a roof over your head. On the upside, secured car loans usually have lower interest rates, allow you to borrow a bigger sum of money (usually up to £ 25,000) and are easier to obtain because the lender has a guarantee in the form of the collateral that you repay the debt. Unsecured car loans do not require a collaterul but, as a result, they have higher interest rate even for people with a good credit score and the amount of money available is smaller (typically between £500 and £15,000). As a rule, a number of conditions must be met in order to obtain an unsecured loan – typically one must be at least 18 years old, have full-time employment and prove to have an income, sufficient to repay the loan. For more on secured and unsecured types of loans and pitfalls to overcome see Personal loans.

Apart from these two main types, there are also some specialised car loans, aimed at target groups of people and offering specific advantages. Many lenders offer student car loans, which allow to postope repaying them until the studies are finished, used car loans, bad credit car loans and refinance car loans. In order to able to get one of these specialized loans, you will need to fulfill certain requirements. It is not highly advisable to apply for one of the specialised loans as, apart from certain benefits, they might have other aditional unfavourable terms.

Always check if the interest rate you are going to pay is fixed, meaning that repayments will not change throughout the term of the loan, or flexible, meaning variable interest rates and, potentially, getting a nasty surprise later. Find out if there is a penalty or a fee for early repayment in case your financial situation improves in the future and you decide to repay your loan early.

One important point to consider when deciding how much to borrow is that buying a car is not just paying the purchase price of it – always bear in mind that you will immediately need insurance, tax and registration fees, not to mention petrol and maintenance. On the other hand, being able to pay at least some deposit on the car (sometimes referred to as down payment) is always a good idea as it allows to reduce the amount to borrow and, accordingly, the final cost of the loan. Most lenders allow you to choose within wich period of time to repay the loan. Be realistic but aim at the the shortest term you can manage as longer terms mean higher overall costs, especially for unsecured loans with higher interests, as interest is paid every year.

Car loans in Britain are offered by banks and building societies, online car finance companies and many supermarkets. Most of them offer on-line or telephone application services. Before applying for a car loan, obtain a document, known as you credit report as it will show you what you can expect in terms of loan conditions offered to you. Always shop around for the best deal and bear in mind that big banks will always try to sell you their own car loans and that the cheapest offer may not always be the best in terms of other conditions.