11 frequently asked car loan questions answered

A personal loan from a bank, building society or other lender is one of the ways to buy a car.

The advantages over other forms of car finance are that there's no deposit required, you own the car outright and there are no restrictions on mileage you can do.

The downside compared to other forms of finance is that other assets, such as your house, are liable to be repossessed if you fall behind on your payments, as opposed to just the car.

We recommend considering a personal loan to buy a car if you don't have a deposit for a finance deal, you want to own the car outright, you plan to keep the car for a while or you don’t want annual mileage restrictions on how far you can drive.

For a full guide to these and other finance options, click on our car finance guide.

Below is a quick guide answering the most frequently asked questions about buying a car with a personal loan.

Do I need a good credit history?
It should be simple to secure finance if you have a good credit rating. It's still possible if you have a poor credit history or if you have been refused loans in the past, but you'll generally be offered less competitive deals. If you are in doubt about your credit history, or want to find out how to improve it, you can get a check from reference agencies such as Experian.

Do I need to be in regular employment to get a loan?
Applicants are typically assessed on a case-by-case basis based on an assessment of their income. Because of this, it is possible for self-employed people or people with sufficient assets to secure loans, provided that they can provide sufficient evidence that they can repay the loan at the agreed rate. Likewise, if you are unemployed you can still make a case for receiving a loan, based on their income and assets. Typically, such evidence might begin at providing evidence of three months of bank balances. The greater the risk to the lender, the more interest they will typically charge.

How old do I have to be to get a loan?
You must be 18 or over to get a bank loan. Even then, you may not be eligible for the most favourable interest rates as you might not have built up a sufficiently good credit rating, or have proof of a long-term stable income. If a loan offer is made to anyone up to the age of 21, they are sometimes asked to provide someone who can act as guarantor of the loan. In the event of the loan defaulting, the guarantor will be held responsible for repayments. Upper age limits depend on the lender, but up to 79 years is typical.

Can I get a loan if I’ve been declared bankrupt in the past?
If you’ve been discharged for at least 12 months it is possible, although you will still typically be asked to declare the facts behind your case, and may be charged a higher rate of interest because the lender may evaluate you as being at a greater risk of not keeping up with repayments.

Can I get a loan for a car if I have only just arrived in the UK?
Few lenders will consider giving credit to anyone who has lived in the UK for less than a year unless they have a significant asset against which to secure the loan, and even then these lenders will typically charge much higher rates to mitigate against the risk of doing so. Most will also make it a condition of the loan that you live in the UK for its duration.

Can I take out a joint loan?
Yes, although not always. Typically a joint loan will be given to people who live at the same address at the time of application, and who meet other criteria to prove they are credit-worthy.

How long does a loan last?
Different lenders have different lower and upper limits, but lending periods are typically between two and seven years. Be certain to weigh up the difference in overall cost of a loan over different periods of time - this is often referred to as the Total Cost of the loan.

What’s an APR?
The annual percentage rate (APR) indicates how much a loan will really cost. It's important to make sure you're comparing like-for-like deals and you look at the overall cost rather than just the monthly rate.  Longer loans will often have lower rates but you'll pay extra in the long run. For example, a two-year finance package with an APR of 5% might cost £300 a month, whereas a similar deal might be available over three years with 4% APR at £250 a month, but you'll pay significantly more over the life of the loan. The APR rate that's advertised may not be the one you get, so be sure you know what you're signing up for. Many finance packages will also contain additional fees, so read the contract carefully.

How much can I borrow?
Most but not all lenders set a minimum loan limit of £1000. The upper limit varies between lenders: how much you can borrow depends very much on you showing that you have the wherewithal to repay what you borrow.

How long does it take to get a loan?
Typically, providing there are no hitches, it takes less than a week to go from making an application to receiving an offer. Such offers are usually valid for 28 days - so never feel pressured into accepting an offer until you have taken the time to sit down and carefully consider the full terms and conditions.

If I’ve been declined a loan, can I reapply?
Yes. So long as your circumstances have changed there is a chance of success. However, the more marginal your circumstances or credit rating, the more likely you are to be charged a higher interest rate.

What if I can’t repay my loan?
Different lenders take different approaches. If you face difficulty repaying a loan, the best course of action is to contact the lender immediately and explain the circumstances. Non-payment puts you at risk of having the car and any other assets you may have reposessed.

To help you find the right deal for you, What Car? has a car finance comparison tool which lets you compare over 300 products from 15 different lenders, all in one place. Visit What Car? Finance by clicking here.