For many decades, the tried and trusted method of raising the finance necessary to buy a car has been to secure a loan from your bank or building society and use the cash to make an immediate cash purchase – the car is yours.
It is little wonder that personal loans such as this remain so popular and well-used – they are very simple and straightforward to arrange. Indeed, the Guardian newspaper reported on the 25th of July 2017, that the average amount of a personal loan now stands at £8,958, with many people looking to borrow the equivalent of half of their annual salary.
By using a specialist broker – such as ourselves here at CarFinance Plus – you have access to a range of competitive rates from the UK’s leading lenders and, depending on your credit rating, may choose between a secured or unsecured personal car loan.
We can also help with bad credit car loans for people who have a less than perfect credit history or who have been refused car finance elsewhere. We can also help if you are self-employed, have CCJs, or are retired.
A secured loan may be obtained by offering your own – or an equivalent asset – as security. If you default on repayments, the lender is able to take possession of your home or other asset.
Given that degree of security and the confidence it gives the lender in recovering the loan you may find that the rate of interest on your borrowing is relatively low – although you need to accept the risk of losing your home or another asset if you default on the repayments.
Given the need to arrange adequate security, however, secured loans are more difficult and likely to take longer to set up.
If you are looking for bad credit car finance, then you may find that you are offered a secured loan – this is because the gives the lender some security that should you default on any repayments, they can seize the asset the loan is secured against.
Considerably more straightforward and easier to set up is an unsecured loan – which, just as the term suggests, requires nothing for you to pledge as security against the borrowing.
Instead, the lender places confidence in the checks made beforehand about your creditworthiness. Your credit rating reflects the way you have managed your debts in the past and your track record in making repayments when they fall due.
The credit check therefore also takes into account your current income, your outgoings and the number and value of any existing loans and credit you have already arranged.
When assessing the affordability of any current unsecured personal loan, any lender needs to take into account the amount you are requesting, any deposit or personal savings you are contributing to the purchase of a car, and the length of time you want to borrow the cash.
In the absence of any security against such a loan – and especially if you have a less than healthy credit rating and you need poor credit car finance – the lender may charge a higher rate of interest on your borrowing.
To manage the cost of your unsecured personal loan, therefore, you might want to ensure that you have saved enough for a reasonably sized deposit (since that reduces the amount you need to borrow) and to reduce the total amount of interest you need to pay by opting for as short a repayment period as you are able to afford.
Providing a 10% deposit – especially if you are looking for bad credit car finance – may help with your application for car finance, as this shows a potential lender you are serious about the borrowing.
Finally, always keep in mind that if you default on your repayments, your credit rating is going to be adversely affected – making it considerably more difficult to raise any other credit or borrowing in the future.