Should I Get Car Finance or a Bank Loan?
You’ve been dreaming of your perfect car for a while now, and you’ve settled on one at last. The only thing left to do now is to go ahead and buy it. If only it was as easy as that, right? What about if you don’t have the spare cash to buy your new car outright, what happens then? 🤔
So what is the best way to pay for a car? Well, you’ll most likely need financing. But what’s the best option between car finance or a bank loan? Can you finance a car through your bank? Let’s go over what choices you have, and how to get the most out of car financing. It’s all a question of making an informed decision - the more you know, the better, right? 😉
Why not check out Jade's video on the subject? 👇
What is Car Financing?
If you don’t have the full amount to buy a car, you’re going to need a loan from a finance company, bank, or another financial institution so you can make your purchase. Car financing is when a financial institution or a lender gives you a loan so you can buy the car that you want.
You’ll then be able to pay the loaned amount through monthly instalments. The typical arrangement in car financing is that you’ll make a down payment, say 10% of the car’s value, and then you can repay the rest of the amount over a certain period.
What happens then? Well, since car financing is a type of loan, the financial institution makes profits by charging you interest and other fees necessary to process the loan. The car you’ll buy with the loaned amount will then act as collateral for the loan. If you're not able to make your monthly payments, then the lender or financial institution has the right to repossess or take the vehicle.
By the way, if you need more info on the different types of car finance contracts, you can read about HP and PCP agreements here.
What are Bank Loans for a Car?
If you’re considering getting your car finance with a bank to buy a car in the UK, you can choose from plenty of different banks. The best option for you boils down to several factors like interest rate, and how fast that specific bank processes and approves applications. Nonetheless, here are just a few of the banks which offer car loans in the UK:
- Sainsbury's Bank (only to people who have a Nectar card, and not open to self-employed customers)
- First Direct (for existing customers only)
- Tesco Bank
- M&S Bank
- Bank of Ireland
What does buying a car with a bank loan entail?
Buying a car with a bank loan is almost the same as car financing - banks also loan you money to make your purchase. However, some banks will let you apply to be pre-approved for a car loan. What this means is that when you’ve been pre-approved, you will know how much the bank will loan to you, as well as the rate and terms that the bank is conditionally offering you. This is great because you can compare offers from different banks and see what’s best in terms of different factors like:
- Interest rates
- Eligibility criteria
- Length of agreement
- Whether or not an initial deposit is required
- If there are mileage restrictions
- Whether or not you own the car
Car Financing or Bank Loan: How to Choose?
When choosing between car finance and getting a loan from a bank to buy a car, your first thought should go to your credit rating. Many banks rely heavily on your credit score before they can proceed with your application for a car loan. If you’re not very confident about your credit rating, then car financing may be the better option for you. Compared to banks, car financing through a finance company is much easier.
When getting a bank loan to purchase a car, you’ll have lots of banks to choose from, which is great! But it can also mean that you’ll have to spend a lot of time comparing rates before you can go ahead with a loan. Always look at the APR to check interest rates like for like.
In fact, it’s actually a lot easier and faster to buy a car with car financing compared to a bank loan. You can have the car of your choice in no time, whereas with banks, you’re going to spend a lot of time gathering the required information, and waiting for them to process your application.
If you want to enjoy your new car without delay, then you can choose the faster route through car finance. However, if you want to shop around and find the best deals from banks, then you might decide to borrow from the bank to buy a car.
A Few Clicks Away From Your New Car With Carmoola
Here at Carmoola, we’re experts at helping you get your dream car. We take the hassle out of car finance - no struggling to understand confusing terms, no unclear goals, no deceiving rates.
We’re passionate about what we do and we want to make purchasing a car accessible for many. We know how difficult it is to not have your own vehicle, that’s why we strive to provide this really straightforward service so you can easily enjoy the convenience, excitement, and freedom that comes with having your own car.
How to Use Carmoola
Excited to drive home in your new car? 😃 Simply download Carmoola so you can get started! All you need to do is add your details like your name and address. Also, grab your ID to verify your identity through the app. Once everything is set up, you can use Carmoola to check if you are eligible for car finance with us. And it's all 24/7 - no waiting to find out if you are eligible - it's done in minutes! You can also use our online calculator to check some figures before you apply - simple.
Don’t hesitate to reach out if you have questions! We’re here to give you the information you need to make the best decisions when it comes to buying a car.