How personal loans work

Around half of new car purchases are at least partly funded by a loan, because few people have such a large chunk of money sitting around doing nothing.

Even if you have got a large sum of money sitting around doing nothing, you may be better off taking out a loan if you can track down a zero per cent finance rate. Whichever option you take, you have to do the sums to see which way will leave you better off in the long term – but remember you need to take into account all the charges if you’re to do this effectively.

Around half of new car purchases are at least partly funded by a loan
  • This is the most popular way of paying for a new car, with a huge variety of lenders offering personal loans – so shop around for the best deals.
  • You choose how long you take to repay the loan and there are no restrictions on the type of car you buy or how many miles you cover – you also don’t need a hefty deposit up front.
  • The car will also be yours from day one, but bear in mind that your car will be repossessed if you don’t keep up the payments on it.

Often, the more you borrow, the better the interest rate you’ll be offered. But you’ve still got to pay the money back (with interest), so don’t get carried away by just looking at your monthly outgoings.