When purchasing cars using finance loans, you have the option of either making your application through the dealership or directly with the lender. These two loan options may appear similar on the surface, however, they do have some notable differences. 

What Are the Key Differences? 

Car Finance Loans Are Secured While Personal Loans Aren’t 

If a loan is secured then it means that if you fall behind on payments, then whatever the loan is secured against is taken in its place. In the case of car finance, the loan is secured against the vehicle you’re making payments on which can be repossessed should you fall behind on the repayments. 

While personal loans can be secured against anything of value and not the particular car, they typically can remain unsecured and nothing will be seized by the lender if you fall behind on the repayments. 

Car Finance Loans Tend to Have Lower Interest Rates 

Because car finance loans are secured loans, there is typically more security for lenders as they’ll be either to seize the vehicle should you fail to keep up with payments. This will result in lower interest rates in comparison to a personal loan, and these interest rates will remain fixed as well. 

There Is More Risk to Lenders With a Personal Loan

As personal loans are typically unsecured, this means that there is more risk to the lender should you fail to pay back the loan plus interest. This can make it harder to get approved for a personal loan as the application requirements are likely to be more strict. 

When it comes to applying for car finance, there are fewer requirements to meet, especially as some dealers are likely to specialise in car finance loans for those with poor credit. 

Personal Loans Can Be Simpler to Manage 

When your personal loan application is successful, you won’t have to deal with the process of financing the vehicle with the dealer. You won’t need to put down a deposit as you’ll borrow as much as you need in order to purchase the car outright. Once you’ve paid for the car, the ownership is transferred to you immediately whereas with car finance you’ll only own the vehicle once the contract ends. 

There Are a Variety of Car Finance Loans to Choose From

One of the more appealing qualities of car finance is that there are multiple finance products to choose from. Car buyers have the choice of finance products that can have lower monthly payments or a simplified process. The three main finance products include:

• Hire Purchase: Your payments are made up of the car’s value plus interest and you’ll own the car once all the payments have been made. 

• Personal Contract Purchase (PCP): As well as the car’s value plus interest, payments are also calculated by the agreed-on mileage limits and other extras. It’s expected that you’ll return the vehicle once the contract ends but you can make an additional payment to own it. 

• Personal Leasing: Similar to PCP finance, however, there is no option to purchase the vehicle and it must be returned once the contract ends. 

Which one is right for me?

Ultimately, when it comes to deciding whether you should purchase your next vehicle through a car finance application or with a personal loan, it comes down to preference. A personal loan allows you to buy the vehicle you want without having to make an agreement with the dealership. While car finance can present more flexibility in terms of the products offered with potentially lower monthly repayments in comparison. 

At Hilton Car Supermarket, we can provide you with a great finance quote if you’re considering purchasing with car finance. Our easy to fill in finance form means that you can find out if you’re eligible for finance in no time. We also have a great selection of informative articles should you need to know more about car finance and what you need to apply. 

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