Personal Loan (PL)

A loan for a car is either a secured (often called a car loan) or unsecured loan (often called a personal loan). A secured loan or car loan is when the finance company retains ownership of the car until you have repaid all of the money you borrowed for the car loan and is therefore similar to hire purchase.  An unsecured loan is when the loan attaches to you (not the car) and you own the car from the date of purchase.  If you default on a secured loan, the finance company takes the car. If you default on an unsecured loan, the finance company will pursue you directly and take legal action against you for repayment of the loan.  Unsecured loans are often more expensive than car loans and will have a higher APR.

Advantages of buying a car using a Loan

Compared with contract hire, contract purchase or hire purchase:

1. The bank can’t simply repossess the vehicle if you don’t pay and must take legal action against you (but will therefore charge a higher rate of interest)

Disadvantages of buying a car using a Loan

1. The total potential cost will be a large range so you will need to compare widely
2. You may not have the credit history required to get a good or indeed any deal
3. Despite owning the car outright from day one, there is still a redemption penalty if you seek to pay off the loan early