Car Loans - Making an Informed Decision About Car Loans

What is a Car Loan?

Unless you have a lump sum available most people need to borrow some or all of the cost of buying a car. A car loan is specifically for the purpose of purchasing a car or to pay for vehicle repairs. The term car loan can be used to describe several different types of car financing options which are available to car buyers.

You need to be at least 18 years old or over to qualify for a car loan, some lenders require you to be 21 years or older and you will need to hold a full UK driver's licence.

Most lenders require you to be earning a minimum of between £1,500 and £2,000 per month.

Generally car loans work in the same way as other loans in that a lender agrees to lend you a sum of money and you agree to pay that amount back plus interest, using regular payments over a pre-determined period of time, usually between 12 months and 5 years. Interest is usually applied from the date the loan is drawn down and the loan repayments gradually repay the amount you've borrowed (the principle) and the interest.

However, there are several other different types of car finance options available, which can make deciding which one is right for you seem a bit more complicated. We will take a look at these in the following sections and explain them, to help you make an informed decision about which is the best car loan for you.