Taking Out a Personal Loan

Personal loans are one of the most popular ways of financing a new car; there are hundreds of banks, building societies and other lenders offering personal loans, so it is worthwhile shopping around for the best deals.

Pros and Cons of Personal Loans

Unlike other forms of finance such as hire purchase or a personal contract plan, once you take out the loan and buy the car, then the vehicle is yours outright. There is also no hefty deposit to pay upfront, and no restrictions on how many miles you cover. However, if you take out a secured loan, you must bear in mind that you could lose your home if you don't keep up repayments. Many personal loans may also require you to pay a penalty (often 2 months payments) if you want to settle the loan early.

APR

The annual percentage rate (APR) that you may be offered will vary with loan company, the amount you want to borrow (you usually get a better rate for higher amounts) and your credit history. In general, they range from around 5.5% to 13%, although this may reach up to 20% if you have a poor credit history.

Repayment Period

You can usually choose the length of the repayment period, depending on how much you can afford each month. For example, a £10,000 loan taken out at an APR of 8.0% would cost you the following monthly payments:

• £870/month over 1 year (total interest paid £438)
• £452/month over 2 years (total interest paid £854)
• £313/month over 3 years (total interest paid £1,281)
• £244/month over 4 years (total interest paid £1,718)
• £202/month over 5 years (total interest paid £2,165)

Repayment Protection Plans

However, it is important to bear in mind that if you opt to include a repayment protection plan to cover your payments if you had a sudden illness, injury or became unemployed, this will dramatically increase your monthly payments. For example, you could pay around £50 a month extra on a £10,000 loan.

You can find out more detailed information about personal secured and unsecured loans on InterLoans.