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Last updated: 22/10/2020 | Estimated Reading Time: 4 minutes

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Buying a new car is exciting, but it's not a simple process. It's not cheap either. If you can't afford to stump up the cash up front, then getting a personal car loan can help, letting you spread the cost over a longer period. However, these loans are not for everyone. This guide will run through what a car loan is, show you how you can get one, and help you decide whether it's right for you.

In This Guide:

What is a car loan?

Quite simply, a car loan is a loan you can take out to cover the cost of buying a car.

You would need to look at which car you want first and how much it will cost, and then your bank or other lender will lend you that amount to be paid back over a certain amount of time with interest. Personal car loans normally have terms of between three to five years but can be anything between one to seven years.

The interest you pay on your car loan will depend on how much you want to borrow. Normally, the more you borrow, the better rates you will get.

The loan is unsecured, meaning your car is not used as security. Therefore, if you miss any loan repayments, your creditor does not have a legal right to repossess your car although you're still liable to pay the loan in full. You are borrowing the money to pay for the car up front, so you own the car as soon as you drive away from the dealership.

How does a car loan work?

Before you apply for a loan to buy your car, you should first find which car you want to buy. This will give you an idea of how much you will need to borrow. If you have any savings, you could use some of this to pay towards a deposit in order to make the size of your loan smaller.

The loan will have to be repaid in monthly instalments over a fixed period, usually between one to seven years. The cost of your loan will be expressed as an APR, or annual percentage rate. This includes your interest rates plus any additional fees.

Bear in mind that you won't be guaranteed the APR advertised on any loan product. Advertised rates are known as representative APRs, and the loan provider only has to offer this to 51% of people accepted for the loan. The actual rates you get quoted could be higher (or lower) than the advertised APR.

Is a car loan right for me?

Not everybody is eligible for a personal loan to buy a car. To qualify, you must have a good credit rating. If you have a poor credit history, then your application is likely to be rejected as the loan wouldn't be secured against any of your assets - either that or you'll be offered a prohibitively high APR.

A personal loan is one of the cheapest ways to finance a car if you can't pay for it upfront, but that doesn't mean it's affordable for everyone. When taking out a car loan, you need to look carefully at the APR and the monthly repayments. Only take out a loan if you're confident that you're able to pay it back.

To help you get an idea of whether a personal car loan is the right option for you, have a look at some of the pros and cons:


  • Can be one of the cheapest ways to finance your car without paying upfront.
  • It's easy to arrange either over the phone, online or in a bank, building society or finance broker.
  • You'll own the car outright from the beginning, allowing you to modify it as you wish or even sell it to help pay off the loan if you need to.
  • Can be used to pay for just part of the total cost of the car if you have savings to pay for the other part.
  • You can find competitive fixed interest rates if you have a good credit rating and compare enough quotes.


  • You're unlikely to qualify for a loan unless you have a very good credit score.
  • Monthly repayments can sometimes be higher than other forms of car finance, such as some of the 0% finance hire purchase deals offered by franchised dealerships.
  • Taking out a car loan can potentially affect your credit rating, making it harder to take out loans in the future including mortgages.
  • As the value of cars depreciates quite quickly, you probably won't be able to cover the full cost of the loan by selling your car.

Where can I get a car loan?

You can apply for a personal car loan at several places, from banks and building societies to online finance brokers. You can use our car finance calculator and check your eligibility to see what kind of loan you can get. Our loan calculator will let you know how much you will have to pay back each month by selecting the size of your loan and the amount of time over which you will pay it back. You can then apply for a car loan right away through our panel of expert brokers.