Loans: £2,000 - £40,000
Rates from: 6.9% APR
Representative: 14.8% APR
Rates from as low as 6.9% APR, representative 14.8% APR. Loans from £2,000 to £40,000. Finance is subject to status and is only available to UK residents aged 21 and over. Carmoola is committed to responsible lending. All information is subject to change and should be checked before completion. We earn a commission if you make a purchase at no additional cost to you.

what is a car loan?

cars are expensive, and you'll need financing if you don’t have enough cash to pay for them in full. since car financing is usually for a large loan amount, lenders require a secured loan or collateral for the loan in case you stop making your payments.

when you buy a car, the car becomes the collateral for the loan. the make, model, and year will determine the type of loan, its rate, and its terms. lenders typically limit the age of a car and/or the number of miles it can have if you’re buying a used car. this is to limit a bank’s losses. if you stop making the payments, but the car isn’t worth much, the bank won’t be able to recoup their loss.

how much will a car loan cost me?

car loans typically only charge the interest rate the lender quotes you. it’s a fixed interest rate, so it never changes throughout the life of the loan.

however, always read the fine print when you shop for a loan. some lenders, for example, charge an origination fee. they might charge 0.5% - 3% of the loan amount. so if you borrow £10,000, you’ll pay £50 - £300 to get the loan.

if you can’t afford to pay the origination fee when you buy the car, the lender may be able to wrap it into your loan amount. however, this increases the amount you pay interest on, which increases the total cost of the car.

other fees to look out for on a car loan are prepayment penalties. this is a fee lenders charge if you pay the loan off early (not common), and late fees. each lender has a different structure regarding the grace period and how much they’ll charge if you make your payment late. know the big picture before taking on a loan.

what do i have to consider with a car loan?

there are a few things to consider when you borrow a car loan.

first, how much down payment are you making? most car loan lenders require at least a small down payment. ideally, you’d put down 10%, but there are loan programs for borrowers with lower down payments too.

the more money you invest in a car, the less you have to borrow, which keeps the total cost of your car down. lenders see you as less risky when you make a larger down payment. save as much as you can to put down on the car, or use your current car as a trade-in to decrease how much you must borrow.

make sure to factor in any other fees you’ll pay to get the loan. for example, if the lender charges a 1% origination fee, that adds 1% of the loan amount to the cost of the car. after figuring out the loan’s total cost, ensure the purchase is worth it.

also, pay close attention to the loan term. the longer you borrow the money, the more interest you’ll pay. this increases the cost of the car overall. try keeping your loan term as short as possible, so you keep the cost down and make buying a car a good purchase.

what is the difference between a car loan and a personal loan?

a personal loan is a loan from a bank for any reason. you don’t have to have a specific reason, such as buying a car.

personal loans can be unsecured, which means they don’t need collateral, and many lenders fund personal loans on the same day or within one business day.

while you can use a personal loan to buy a car, it’s not recommended.

here’s why.

banks charge much higher interest rates on personal loans, and sometimes fees too. because there’s no collateral, lenders charge more to make up for the risk of default. with a car loan, lenders have security in the car. if you stop making your payments, they will repossess the car and sell it to make their money back.

if you have a personal loan already and want to use the funds to buy a car, you can, but it will likely cost you more in the long run. so you’re better off getting a loan secured by the car to get better rate.

what requirements do i have to meet to get a car loan?

to get a car loan, you’ll need good credit. this is because lenders take a risk lending you money on a depreciating asset (cars lose value, not gain it). so they want to ensure all borrowers have a good credit history to ensure they are a low risk of default.

at a minimum, you should have a 721 credit score, but an even higher score will give you a better chance at approval and getting the best rates.

while you can get a car loan with a lower credit score, you’ll pay for it with a less attractive interest rate, and possibly an origination fee.

you must also prove beyond a reasonable doubt that you have stable employment/income and a proof of residence.

lenders want proof of your employment and income to prove you can afford the loan. if you don’t have a job or have a history of changing jobs often, you might be seen as a higher risk and may not get approved. you’ll need to provide paystubs, a w-2 to prove your income, and a government-issued id to prove your residence.

how much car loan can i get?

since a car loan is secured by the car, how much you can borrow depends on the car’s value. on average, car lenders allow loans of £10,000 - £100000 but no more than what the car is worth.

as we said earlier, most lenders want a down payment, too, so the loan amount will equal the car’s value minus any required down payment. lenders like when borrowers have ‘skin in the game’ because it makes them more likely to make payments even when things get tough financially.

if you don't make your payments for over three months, lenders can repossess your car and sell it to make their money back.

which car loan is the cheapest?

you’ll find the cheapest car loan at credit unions. because they are not-for-profit, they pass the savings along to their members. if you belong to a credit union, you are a member and part owner.

you can take advantage of the lower rates, and most credit unions also don’t charge origination fees on their loans but have flexible underwriting guidelines.

if you don’t belong to a credit union, your next best bet is to go to your local or online bank. try to have a down payment on the car, and have good credit. the less time you borrow the money, the lower your interest rate.

how can you make a car loan more favourable?

the best way to get the best rates and terms is to do the following:

  • maximise your credit score - the better your credit score is, the better terms you’ll get
  • stabilise your employment - show lenders you are a good risk by having stable employment and not job hopping
  • make a down payment - aim to put down at least 10% on the car

how quickly can i get the car loan paid out?

if you get a car loan at the car dealer, you can get financing the same day. likewise, if you negotiate the terms of the sale the day you find the car, you can finalise financing the same day too.

the funding may take a day or two if you go through a credit union, local or online bank. allow enough time for underwriting and to have the funds wired to you before you shop for a car. this way, when you go to the dealership, you are like a cash buyer and may have an easier time negotiating a better deal.

when can i repay or reschedule or increase the car loan?

you can’t increase the loan amount when you borrow a car loan. the amount you borrow is based on the car’s value at the time of purchase. since cars depreciate, there won’t be more value in the car to borrow from, like happens with a house.

with most lenders, you can repay the loan ahead of schedule without worrying about a prepayment penalty.

if you have financial troubles, can’t afford the loan, or need a lower payment, you may be eligible to refinance the loan. this extends the time it takes to pay the loan back, which means you’ll pay more interest over the loan’s term, but you can lower your payment to avoid defaulting on your loan.