Best Car Finance Loan Providers & Sites in 2021

How do you go about buying a new car or upgrading that old model to a newer and more efficient model? Well, if you have enough cash hand, you only need to walk into a dealership and make a cash purchase. If you, however need the upgrade but don’t have enough savings, you can always on the numerous financial institutions ready to offer you a car finance loan. The car finance loan is no different from any other loan offered by a bank or a credit facility save for the fact that it can only be used to fund the acquisition of a car. So how do you qualify for the car finance loan, how much money does the lender advance and what are some of the best car finance loan companies.

In answering these questions we have prepared the ultimate guide to the Best Car Finance Loans of 2021. Here, we’ll give you a full breakdown of what a car finance loan is, how it works, how much it’s likely to cost you, and insights about the legal ownership of the vehicle. Plus we also provide you with a list of what we consider the best three car finance loan companies.

Pros and cons of car finance loans

Best 3 car finance loan providers: Reviewer’s choice

How to arrange car finance – step-by-step guide

Step 1: Choose your preferred car

First and foremost, you need to choose a car that falls within your budget in terms of initial cost and maintenance. Although you will have the freedom of paying the car off over several years, you still need to ensure that you only purchase a car that you can actually afford. Keep in mind that an expensive the car almost always translates to higher monthly repayment premiums and maintenance costs.

Step 2: Find a trusted car finance loan provider

After identifying the car you wish to buy, you now have to find a car finance loan provider willing to fund its acquisition. This can be a bank, another asset financing institution or even the car dealership.

In most cases, how much you get as car finance loan and the interest rate it carries will largely depend on such factors as your creditworthiness, deposit amounts, and your ability to repay the loan within the agreed period – proven by your annual incomes.

Step 3: Agree on the loan terms

Once you have found a suitable dealer, you now need to find out what loan terms are on offer. To achieve this, the dealer will likely need to run a credit check on you. This will allow them to ascertain what your financial standing and whether you qualify for a car finance loan.

If you do, the lender will likely present you with the loan pre-approval letter detailing such loans terms as how much they are willing to offer you, the loan interest rates, repayment periods and the amounts to be repaid in monthly installment

Step 4: Pay your deposit and drive away

Once you have agreed on the terms surrounding the car finance loan, you will then be required to make a deposit. The specific amount will vary depending on your preferred dealer although a ball-park figure will usually be around 10%. As we noted earlier, paying a larger deposit will allow you to benefit from smaller monthly installments, so do bear this in mind.

Step 5: Make your repayments

As is the case with a conventional personal loan, you will now be required to start making your monthly repayments. It is highly likely that the dealer would have got you to set up a direct debit agreement, meaning that the payments will be taken from your bank account every month. And if you are dealing with fixed loan interest, it will be highly likely that  these loan repayments will be fixed. You, therefore, will always end up paying the same amount each month and this erases your budgeting process. Note that missing multiple payments and failure to pay altogether may the lender repossess the car.

Missing payments also increases the cost of the loan substantially through fines and penalties. And this calls for proper budgeting to ensure you always have enough money in your bank to cover the payments. Far from fines and penalties, note that missed payments are likely to be reported to the main three credit agencies effectively lowering credit score and dimming chances of getting affordable loan in future.

Step 6: Own the car 100% outright

Some lenders insist on holding on to the car ownership deeds until the loan is repaid in full after which you are credited with absolute ownership of the car.

Best 3 car finance loan providers

Now that you understand the merits and demerits of applying for a car finance loan and the factors that most loan providers consider in determining the loan amounts to advance you and their accompanying interest rates, lets look at the best three car finance loan providers in the UK.

But first, we look at the criteria used to rank these providers and why we consider them the best.

Criteria used to rank the best car finance providers

• Lenders with the most competitive interest rates
• How much the lender is able to offer
• What credit score you need to obtain the car finance
• What type of car finance is offered
• How much you will need to pay each month

What is a car finance loan?

In its most basic form, a car finance loan is a type of loan that goes towards the purchase of a motor vehicle. However, the term ‘car financing’ is a somewhat broad, especially because it can be used to refer to a number of car loan options currently available. As we will discuss in more detail shortly, these include the  conventional personal loan, hire lease, or a personal contract purchase. Each of these car finance options comes with its own pros and cons, and whether you qualify for one largely depends on such factors as your current credit score, or the amount of funds you have at your disposal to put down as a deposit.

In order to give you a clear picture of how car finance can works, we have outlined the three main options you will likely have to choose from.

• Much like a purchase hire, you will be required to pay a deposit upfront, which again, will usually need to be at least 10%
• You will be offered a rate of interest, which will be based on your current credit score (among other metrics)
• You do not own the car while the agreement is still ongoing
• However, when the contract does come to an end, you will be given three options as to how you want to proceed. You can either [A] return the car at no extra cost [2] purchase the car outright at its current market value or [3] use the car’s current market value as a deposit for a new personal contract purchase.

As you can see from the above points, a personal contract purchase is much more complex than personal loan or hire purchase finacing options. This however isnt to say that the personal contract purchase doest have its benefits. For example, your monthly payments will typically be much lower than that of a hire purchase, and you are given the option of buying the car or returning it at the end of the agreement. Moreover, not only will you not need to worry about the impact of depreciation (which is guaranteed), but you can usually include servicing and maintenance within the agreement.

What is the cost of a car financing loan?

Again, there is no one size fits all answer to how much car finance will cost you, especally considering that there are heaps of variables to take into consideration. For example, this will firstly include the type of car finance loan that you opt for. Moreover, the specific rate that you get will also be dependent on your current financial standing, such as your credit score and your current debt to income ratio.

Nevertheless, in order to give you a clearer picture of some of the factors that might determine how much you end up paying for the car finance loan, check out the factors listed below:

i) Type of car finance loan option

If you opt for a personal contract purchase over a hire purchase agreement, then you will all-but certainly pay a lower monthly amount. This is because you are only paying an amount equal to the vehicle’s assumed depreciation, as opposed to paying the full value of the car off.

ii) Size of your downpayment

While the car dealer in question will likely specify a minimum deposit amount that you need to put down (which is usually around 10% of the car’s value), you do have the option of contributing a larger downpayment. This can be highly beneficial for you in the long-run, as it will mean that your monthly payments will be lower. On the contrary, if you opt for a personal loan then you likely won’t need to worry about a downpayment.

iii) APR percentage

Your choice of loan type notwithstanding, you will need to pay interests on the advanced amounts. The specific APR rate will not only vary depending on the type of loan you opt for and the dealer behind the loan, but also your specific credit profile, too.  In other words, the better your credit rating, the lower the interest rate is likely to be.

iv) Additional fees

You need to be sure that you understand the car finance package that is offered to you, as this might include a number of additional fees that need to be taken into account. For example, if opting for a personal loan, then you might need to pay an origination fee. This is the fee charged by lenders to cover the cost of facilitating the loan, and usually ranges from 0.5%, to 5%.

Glossary of loan terms

FAQ