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Car Finance

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What is a Car Loan?

When making a major purchase like a car, you may need additional financial support to cover the costs. A car loan is a way for you to finance the purchase of your new car. You can use the loan to cover either the complete cost, or a part of the payment, and then repay the money over affordable monthly instalments.

There are various car financing options available for you to use – such as personal loans and Hire Purchase arrangement, etc. To choose what’s best for you, it is important to evaluate your income, expenses and prior financial engagements.

What are the different types of car loans?

Here are three of the most common ways to finance the purchase of your car:

A. Unsecured Car Loans – An unsecured personal loan is a quick, convenient, and budget-friendly way for you to fund the purchase of your car. You can borrow up to £35,000 without pledging collateral and repay the loan via reasonable monthly instalments.

Since the money gets disbursed directly into your account, you will be able to buy the car with complete ownership, unlike Hire Purchase. So, you can even sell the vehicle if you’re facing a cash crunch, want an upgrade, or don’t need it anymore.

Plus, the better your credit report is, the lower your rates will be on a personal loan, so the overall cost of your car might come out lower using a personal loan than through a Hire Purchase arrangement.

B. Hire Purchase (HP): When you use Hire Purchase to finance your car, you are required to present a small deposit, usually amounting to 10%, to take the car home. You can then continue to pay the car’s cost every month. However, you won’t be the owner of the vehicle, nor would you be able to sell it until you’ve paid the car’s entire cost. Once you settle the dues, you may have to pay an additional fee of around £100 to get the car’s ownership, often known as the ‘option to purchase price.

C. Personal Contract Purchase (PCP): A PCP agreement is similar to a Hire Purchase but slightly lower monthly repayment. This loan aims to pay the difference between the current market price and the predicted market price of the car at the end of the PCP. During the PCP term, the annual mileage can be forecast to determine the predicted value. When the term ends, you can either return the car to the dealer, use resale value to buy a new car, or buy the original car by paying a final lump sum to the dealer.

What is the best way to apply for car finance?

There are numerous ways to finance the purchase of your car. Assess your finances and work out which method would suit you the best. Compare your options to make an informed decision:



Personal loan

Hire Purchase (HP)

Personal Contract Purchase (PCP)


Not required



Immediate car ownership




Car ownership after the final term



Optional (If you pay off the final payment, often a considerable lump sum)

Collateral requirement (car) 




Mileage limit and charge




Repayment cycle




How does a car loan work?

A personal loan for car purchases enables you to split your expense into affordable monthly instalments and lightens your financial burden without the need for collateral. Herein, you can borrow from £1,000 to £35,000 and repay the loan within 12-84 months.

Lenders usually disburse the loan amount directly to your bank account within a few days. Upon receiving the money, you can pay your car dealer upfront to purchase a vehicle, and you will own the car the moment you begin repayment.
Personal loans also carry a repayment obligation. Defaulting your loan payments can severely harm your credit score. There is a possibility that your lender may even obtain a County Court Judgement against you, which will hinder your ability to secure credit in the future.

Personal loans can help you build or improve your credit score when used responsibly. As long as you borrow an amount you can pay back, including loan repayments in your monthly budget will enable you to adhere to your repayment schedule.

Why is a personal loan for car purchases better than traditional car finance?

Financing your car through a personal loan gives you more control and flexibility over the loan terms. To own your ideal car, you won’t need to find a way around the mileage restrictions or exorbitant APRs. Plus, personal loans are more convenient since they’re transferred directly into your bank account, enabling you to purchase the car under your ownership.

What to consider before borrowing a car loan?

Buying a car is a critical decision, so there’s a lot that you might want to consider before taking a call. Ask yourself these questions to get more clarity on your borrowing decision:

• Is this a suitable loan amount for me?
You have to assess your affordability before borrowing a loan. Ensure that you borrow an amount you can afford to repay within the decided loan term.

• Will I be able to commit to the loan term?
Long-term loans require a greater commitment. Evaluate your finances and circumstances to figure out a convenient loan term.

• Do I need a contingency plan for repayments?
It is always wise to plan for unprecedented events in life. A contingency plan will allow you to stay consistent with your loan repayments, safeguarding your credit score.

• Will I be able to handle the car’s maintenance and repair costs?
Buying a car comes with responsibility – you need to consider the overhead costs like fuel expenses, repair costs, maintenance costs, etc. Make an informed decision based on these factors.

What happens if I miss a payment?

Missing a payment can cost you a few points off your credit score. If you continue to miss payments and default on your loan, your lender may get a CCJ issued against you. A CCJ could severely impact your chances of securing credit for your future goals. Therefore, you must stay on top of your repayments and maintain a healthy credit score.

How much can I borrow with a car loan?

Crunching numbers was never this easy – check your affordability at the click of a button. Secure your future by making an informed financial decision.

Car finance calculator

What is the purpose of your loan ?
How much do you wish to borrow?
What repayment term would you like to choose ?

Representative Example

Loan Amount


Loan Term

3 Years

Total repayment


Monthly repayment





41% p.a (fixed)

*The rate you get will depend on your individual, financial circumstances. Late repayment can cause you serious money problems. For more information, go to MONEYADVICESERVICE.ORG.UK.

Apply for a car loan with LoanTube


Tell us how much you need, for how long, and for what purpose.


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Select the loan that best matches your circumstances, and Get Funded.

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Does LoanTube charge any arrangement fee on car loans?

LoanTube does not charge an upfront fee for your loan. Enjoy a transparent and hassle-free borrowing experience at zero upfront fee.

Can I repay my car loan early?

If you wish to repay your loan for car purchase early, it would be best to check your contract for any clauses about the settlement fee. If your lender does not impose an early repayment charge, you can settle your loan before the end of your repayment term.

Do I need a guarantor to borrow a car loan?

If you have a below-par credit score, a guarantor may help you out. Guarantors co-sign your application and partake in the loan’s obligations with you. So, a guarantor with a stellar credit history can support your application.

What is the maximum amount that I can borrow through LoanTube?

You can borrow up to £35,000 throughout 12-84 months with LoanTube.

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Representative APR Example

The rate you are offered will depend on your individual circumstances.

Representative APR Example: On an assumed loan amount of £2,600.00 over 36 months. Rate of interest 41% per annum (fixed). Representative 49.7% APR. Total amount payable £4,557.89 of which £1,957.89 is interest. 35 monthly repayments of £126.61 and a final payment of £126.54

Our APR rate starts from 15.6%. The maximum APR we offer is 249.55%, but you will get a personalised rate tailored to you. The minimum repayment term is 1 year, the maximum repayment term is 20 years.

Warning: Late repayment can cause you serious money problems. For more information, go to MONEYADVICESERVICE.ORG.UK

Credit subject to status & affordability assessment by Lenders.

LoanTube is a credit broker and not a lender.

Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on any debt secured against it.

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