For many, car loans are the only way they can afford a new car. In the US, it has been common place for car companies to offer competitive interest rates on new cars to prospective buyers and this practice is now common place in the UK as well.
Walk into any car dealership and you will see advertising for low or even no-interest loans for new cars. This is a great way for consumers to cost-effectively purchase new cars and had made the car loan market very competitive among lenders, which is good news for borrowers.
Usually, car loans are offered at 100 per cent of the vehicle’s purchase price and will run between 24 months and 5 years in length – these are all dependent upon the borrower’s credit history. However, most lenders will require some type of deposit to obtain a car loan, the percentage will vary from lender to lender and is partly based on the borrower’s creditworthiness.
Some lenders have had to become very innovative in the competitive car loan market and will accept an existing car as a part exchange towards the required deposit. This is providing that the car to be exchanged is of sufficient value.
Although car loans are typically available for any car, new or second hand (private or dealership), it may be difficult to obtain a car loan for a private car purchase. Car loans from dealerships are normally tailored towards new car purchases only. Banks offering car loans may also stipulate that the car has to be purchased from a reputable dealership and not from a private seller.
However, some lenders nowadays have their own approved network of car dealerships that they work with, where acceptance rates for loans are higher than when looking privately or elsewhere. This may be a good option for those with a limited ability to pay a high deposit or those with a bad credit rating.