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A personal loan makes car buying straightforward

A personal loan makes car buying straightforward

The top selling cars of 2018 show that the choice has never been greater.

Among the UK's favourites are city cars, family hatchbacks and performance salons and there is increasing interest in alternatively fuelled vehicles, such as hybrid and electric, which are falling in price and seen a rise in sales of nearly 10% so far this year1.

Add to that manufacturers now allow you to select from an ever-increasing array of colours, trims, engine sizes and equipment to specify a new vehicle ensures that it has never been easier to find a car to meet your exact needs.

There are a number of ways to finance your new car and opting for a personal loan gives you the flexibility to shop around to find the most competitive deal for your preferred choice.

Choosing a personal loan means its length can be fixed and repaid, typically over a period of between one and seven years, dependent on the amount you borrow. Monthly payments are fixed for the term of the agreement which makes budgeting easier. Applying for a personal loan can often be made online or over the phone.

An advantage of a personal loan is that when purchasing the car you won't need to find a deposit which is often the case with other forms of car finance, such as personal contract purchase, leasing or hire purchase.

This leaves you free to negotiate as if a cash sale.

Using a loan also means you own the vehicle at the end of the agreement. With Personal Contact Purchase (PCP) there are decisions to be made at the end of the agreement period including a possible final payment up to half of its resale value of the car should you want to keep the vehicle. Do you trade in the car and start all over again or simply hand the keys back to the dealer?

There can also be additional costs associated with leasing when compared with a loan. There will be an upfront payment, often the equivalent of three months rental payments, there may also be strict guidelines about the service and maintenance of the vehicle during the contract. Furthermore, at the end of the agreement you will need to hand the car back which means despite all of the payments the car is never yours. 

Buying a car with a personal loan gives you the peace of mind in that at the end of the agreement the car is yours. With dealer finance or leasing arrangements there are likely to be restrictions in place such as a ceiling on the number of miles you can drive, which can be as low as 6,000 miles a year, with a penalty payment for every mile you exceed over that limit. You may also be responsible for any wear and tear which can mean being faced with extra payments at the end of the agreement.

When considering buying a car it's important to establish your budget and understand the difference between your needs and your wants as everyone has a unique set of requirements in a new vehicle. If you decide to take out a loan to pay for a new car, always be mindful of tempting offers and check the small print as the lowest rate is not always the best option.

1. https://www.smmt.co.uk/vehicle-data/car-registrations

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