Important Aspects Of Car Loans

When looking to purchase your first or next vehicle, it is good to consider whether you could benefit from car finance or a car loan. Unlike purchasing a car with a lump sum, car loans can provide more flexibility with repayments spread over a number of months and potentially more opportunities to afford the vehicle you really want.

However, before you start searching and applying for the best car finance, there are a number of important aspects to consider. In this post, we will detail the points that you need to think about before applying for car loans or finance, which should help you to start your journey on the right foot.

The Kinds Of Car Loans And Finance Available

While you may have heard ‘car loan’ and ‘car finance’ being spoken about in the same context, there are important differences between the two. With a car loan, you will be taking out an unsecured or secured personal loan that is to be repaid in full plus interest in agreed monthly instalments.

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Car finance is slightly different as there are more options available, such as personal contract purchase (PCP), hire purchase, and personal contract hire (PCH). PCP and PCH involve paying a deposit and monthly payments to cover depreciation of your chosen vehicle, but you do not own the car until you make the final ‘balloon’ payment (a lump sum at the end of the contract). Hire purchase is effectively a loan secured against the vehicle, you will still have monthly repayments for the loan/interest and you will not own the vehicle until you have made the final payment, although there is no balloon payment at the end.

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Additional Costs

Before setting your heart on a car purchase, you should work out the potential costs of owning and running a vehicle. If you are looking for new cars, it is worth remembering that they can lose up to a third of their value during their first year, while older vehicles and different transmission types, fuel types and engine sizes can offer varying levels of depreciation. Additionally, there is annual car tax to pay on most diesel and petrol cars, as well as insurance and maintenance costs.


One essential aspect of car loans is affordability and your credit rating. You need to ensure that you are capable of paying off your loan or finance each month, on top of all of your other outgoings. It is also worth checking your credit rating and maintaining it, to make sure that you are offered the best rates. There are a few steps that you can take to help you secure a better deal or a lower interest rate, including:

  • Paying a larger initial deposit
  • Being prepared to pay partly in cash
  • Using budgeting tools
  • Shopping around to compare deals

Now that you have done your research and learned about the important aspects of car loans and car finance, you can begin searching for an option to suit you. Whether you want a new or used car, make sure you use comparison tools, read reviews, and check your own needs against a lender’s criteria to find something that works for you. If you need any more advice on car loans or maintaining your credit score, please seek impartial help from the Money Advice Service.

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