The problem with cars is that they are very desirable. They don't just get us from A to B, they are also a status symbol that says "Look at Me, I'm Successful". We all want to look cool and be admired and are prepared to pay lots of money to create this image. This means buying the absolute best car you can afford and therefore taking out the largest car loan you can afford to repay.
The trouble is that people are too concerned about how cool they look to care about or even notice if you look cool.
So, our advice is don't get a car loan that stretches you financially.
Do you even need a car loan?
- Make sure that you can't make do with a different form of transport such as a bike, train or even walking. Maybe you could travel to work by car share with someone who lives near you?
- Choose a cheaper or older car that is reliable. You may be able to buy a car for the amount that you were considering as a deposit.
- If you have an existing car, maybe you can get some more miles out of it or have it repaired rather than partexchanging it.
- Could you Car Share with your spouse or other family member?
How to choose a car loan
OK, so you have decided that you do need a car loan and you have decided on a car that won't stretch your budget, one that is reliable and will serve you many years of faithful service.
The important factors are the length of the loan and the interest rate, both of which effect how much you will pay for your loan. Also important is how they will deal with you if you default on one or more payments. Would they repossess the car or whack you with financial penalties?
Length of Loan (or Term)
This should be as short as possible to reduce the total amount repaid. Have a play with our car loan calculator to see the effect of the term on the total cost of the loan. A loan over a horter period will create greater financial freedom for you once the loan is repaid.
The interest rate should be quoted as APR (annual percentage rate) to enable you to compare different financial packages. Again we recommend using a car loan calculator to see how much the APR effects the repayments and the total cost of the car loan.
Different types of car loan
For information on car leasing, PCPs and more on hire purchase agreements, please read our car finance guide.