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An Introduction to Car Loans

Thinking about how you plan to finance your new car before hand can save you hundreds of pounds. While it is true that you will ultimately drive away in your new car, it is not true that all credit options will end up costing the same amount.

Depending on where your finance comes from, you might pay off the loan in a few months or save some money on interest. If you find a loan with a competitive rate over a sensible length of time, bank loans are a great source for financing the purchase of your new car and can spare you any later complications that would arise if you were to borrow from family.

New car dealerships may also offer you finance packages. These do not necessarily result in the most cost effective deal, and can often be very expensive relative to a simple bank loan.

We compared a number of examples from well known high street banks and found that Alliance & Leicester currently offers the most competitive car loans at 6.9% APR typical for personal loans between £7,500 and £20,000 (as of 20/09/2007). Applying Online is also simple and takes 10 minutes and you could have a decision within the hour so can be as quick as using the dealership. However, unlike the car dealership loan, such personal loans are usually a simple interest loan with no hidden charges.

Car Loans Compared*

New customers taking £7,500 over 60 months

	APR Typical	Monthly Cost	Total Payable	Savings
Alliance & Leicester	6.9%	£147.55	£8,853.00	-
Lloyds TSB	7.4%	£149.23	£8,953.80	£100.80
Abbey	7.9%	£150.74	£9,044.40	£191.40
Egg	9.9%	£157.57	£9,454.20	£601.20
Black Horse	11.9%	£164.57	£9,874.20	£1,021.20

Source of competitor data: Moneyfacts.co.uk - the money search engine 23.07.07

Things do change quite quickly in the world of loans though so make sure you use a comparison engine such that that on MoneySupermarket.com or www.fool.co.uk in order to compare loans for the best current rates at the time. You will be amazed as the determination of the banks to come up with better and better deals!

If you are lucky enough to be able to borrow from a family member or friend, this is worth considering. Such personal deals come with competitive interest rates or interest free, not to mention easy, quick and very flexible terms at times and a far more personalised service that any bank could provide.

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