Personal Loan vs Car Finance

  • Find out the pros and cons for car finance and personal loans
  • One offers more flexibility while the other lower interest rates
  • Take the time to shop around

Buying a new car - whether it’s straight off the production line or from the previous owner's drive - is for most of us, an exciting and enjoyable time.

A car is likely to be your second biggest purchase after your home, and although most of us would like to save enough money to pay for it all upfront, life throws up all sorts of challenges so some of us may need a little help paying for it.

So then comes the difficult and sometimes confusing decision of which finance method to choose from.

The most popular choices for financing your next car purchase are either taking out a personal loan or sorting car finance direct through the dealership or specialist provider.

In this article we will explore the pros, cons and restrictions for both to help you decide the best option for you.

Personal Loans

Although loans have become harder to get hold of because of the economic challenges of recent years they are still a popular choice when looking to finance your next car.

There are two different types of loan you can opt for - secured or unsecured.  

A secured loan requires some form of asset (usually your house) that will be used as security by the lender to recover its cash if you fail to pay them back. An unsecured loan doesn’t need this, instead the lender judges from your credit rating if it can trust you to repay the money.

The pros:

  • No deposit required
  • No restrictions on how you drive the car (some finance deals have mileage limitations)
  • You will own it outright from the start so can sell or change your car whenever you see fit

The cons;

  • Lenders will sometimes increase interest rates after you have applied
  • Loan interest rates are usually higher
  • More likely to be refused if you have a poor credit rating

Car Finance

There are two main types of funding when it comes to car finance, usually arranged through the dealership; hire purchase (HP) and contract hire purchase (CHP).

The main difference between the two is that one you pay a lump sum at the end (CHP) and the other you don’t (HP).

Both require a deposit initially and then regular monthly payment until the end of the agreed term.

At the end of the term, if you opt for hire purchase, the car will become yours. If you have a CHP plan you need to pay the outstanding balance to take ownership of the car or trade the car in using the leftover value as deposit on a new model.

Click here to visit our car finance section for a simple, affordable and trusted service allowing you to finance the car you want at the best possible price.

The pros:

  • Usually a lower interest rate
  • More available funding if you have a poor credit rating
  • Lower monthly repayments – especially if opting for a CHP deal

The cons:

  • Deposit is required
  • The car is owned by the finance company until you make the final payment
  • Could have mileage limitations on PCP deals


Shop around to find the best finance deal whether you opt for a personal loan or a finance contract - there are often zero-percent offers available, so it’s worth taking the time to find the best deal.

Once you've decided on the right type of finance for you, make sure you visit our finance section for a quote - we work with over 21 lenders to give our customers access to over 100 different lending options.

Want to know more?

Top tips when buying a car - click here

When is the best time to buy a car - click here

How to choose your next family car - click here