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Everything you need to know about Car Loans

Are you looking to apply for a car loan? If so you are not alone, hundreds of thousands of people apply for loans to buy cars in the UK every month. If you are, the following page could be very important to ensure you get the loan you deserve. We will teach you exactly what a car loan is, how they work and how your personal circumstances affect the loan rates and amount you can borrow.

Definition of a car loan

It is important that we start with the fundamental point of what a car loan is. A car loan can be defined as:

"The borrowing of money which has to be repaid with interest to fund the purchase of a car"

Car loans are sometimes described as a number of different loan products. The main finance product that is used is Hire Purchase. This is the traditional loan type that dealers and finance providers offer. This is a secured loan as the value is secured against the asset (your new car). An alternative option to Hire Purchase would be a personal loan or a car leasing product.

Why car loans have become so important in the UK

Registered Cars 2012

Total: 28,467,009

Male: 51.1%

Female: 34.0%

Companies: 8.2%

Other: 6.7%

Consumers in the UK love their cars. As of 2012 there were nearly 28.5 million registered cars in the UK, a number that has consistently increased over the last 15 years ( With the continuing rise in the number of vehicles it is clear that millions of new and used cars are sold each year. In the UK we have a history of wanting to own our cars and although leasing products are growing in the consumer market, the majority of drivers still want to continue this trend.

It will be no surprise that cars are an expensive purchase, especially if you are looking at newer models. Most people do not have thousands of pounds saved which they can use to purchase a car. Therefore people tend to look for affordable ways to borrow money.

As you would expect from the name, car loans are one of the most popular choices that consumers use to buy a car. Secured car loans tailored specifically for the purchase of a vehicle and provide affordable monthly payments over a sensible length of time.

Ready to apply for a car loan? It will only take a couple of minutes to provide you with your instant online decision!

How does a car loan work?

V5 Document

A car loan is a Hire Purchase agreement that is designed to be used to purchase a car. The money can only be used to buy a car and the full amount will be given to the seller. The buyer will never receive the funds and cannot use the money for anything other than the purchase of the car.

The car loan will be set over a fixed period which is generally between 2 – 5 years (24 – 60 months). Each month a set payment is made to pay back the money borrowed and any interest that was agreed when the loan was taken out. The monthly payment will not change throughout the loan period.

The borrower will instantly own the vehicle once the documents have been signed and completed. They are the registered owner on the V5 document. Once the final loan payment has been made the owner keeps the car and they are not required to make a balloon payment.

A means to an end – Funding your new car!

When you apply for a loan it is clear that the loan is only acting as a facilitation to provide you with a new car. Although the loan is vital, it is not actually what you are looking to achieve. The end goal is to get the perfect car at a price that you can realistically afford.

The loan can also be the most complicated part of the car buying process. If it is your first time of borrowing money to buy a car there may be some loan terms that are not self explanatory.

The key with car loans is to keep the monthly payments as low as possible across the shortest term that you can achieve. Many people will see the APR as being the most important figure, but this can easily be mistaken as the APR might be skewed by final loan payments and other factors. These factors will be set by the lender and therefore the easiest way to compare loans is by looking at the number of monthly payments and the amount you pay with each of those payments.

Below we have defined a few of the key terms that you will need to understand with your loan:

APR: APR stands for Annual Percentage Rate. This is a widely recognised rate that consumers will use to compare interest rates associated with a loan.

Term: The term is the number of years or months that the loan will run over.

Monthly Payments: Your loan will be paid back over fixed monthly payments that will be determined by the amount you wish to borrow and your credit history.

Flat Rate: This is the true interest rate that is set by the lender to work out the actual level of interest that will be paid on a loan.

Ready to apply for a car loan? It will only take a couple of minutes to provide you with your instant online decision!

Monthly payments and APR

As we talk to customers everyday about car loans, we know that they tend to place a great deal of emphasis on the level of APR (interest). It can be such a major factor that some customers will either decide to take or leave a loan based purely on this figure, regardless of monthly payments. We have created a couple of charts that will help you to visualise the effect different levels of APR can have on your loan.

The important thing to remember is the higher credit score you have, the better level of APR you will be offered (a lower rate). Obtaining a lower rate is important because it will determine how much money you can borrow according to your monthly budget. The following examples show how different levels of APR will affect the loan amount with a monthly budget of £250:

Monthly Budget APR Rate Car Value Total Repayable
£250 7.9% £8,024.97 £9,000
£250 14.9% £7,320.05 £9,000
£250 18.9% £6,971.34 £9,000

The example above uses a monthly budget of £250 over a term of 36 months.

The charts below provide a graphical representation of how APR affects both the amount you can spend on a car and the level of interest you will have to pay.

The chart on the left shows the amount of money you will have to spend on a vehicle depending on the level of APR. When the APR increases, the amount you can spend on a vehicle decreases.

The chart on the right shows the amount of interest you will have to repay depending on the level of APR. As you can see, the lower the APR the less you will spend on interest and the more you can spend on a car.

Car Value Depending on APR

APR compared to spend

Interest Payable Depending on APR

APR to interest charged

It is quite easy to sum up APR. The lower the level of APR the more money you will have available to spend on the purchase price of a vehicle and the less you will have to pay on interest charges. BUT, the level of APR will directly depend on your credit history so not all people will achieve a low level of APR.

Ready to apply for a car loan? It will only take a couple of minutes to provide you with your instant online decision!

Your credit rating is vital

When you apply for any loan the lender will check your credit file to understand the level of risk that you pose to them. If you have adversity or negative factors on your credit file you might not be able to achieve the interest level you were hoping for.

Understanding your likely credit history is vital. Once you understand this you will be able to make a decision about how competitive the loan that you are being offered is. Even though a car loan is technically a secured loan the lender will still want to see evidence that you will repay the money they lend you. They will also want to ensure that you are in a stable job and unlikely to move away suddenly.

If you are unsure of your credit score you can use the tool below. You simply need to answer 14 questions and you will be provided with your likely credit rating. Once you know this it will help you to understand the possible loan amount and interest levels you will be paying.

Free Credit Rating Guide

Quickly Understand your Credit Rating
by Answering 14 Simple Questions

Your financial history will define your credit profile and will usually be classified into one of four groups: Excellent, Good, Fair and Poor credit score. The amount of money you can borrow for a new car and the level of interest you will pay will depend on your credit rating.

It is important that you understand your credit rating as this will affect your car finance options. Answer the 14 questions below to find out your likely credit rating and to understand more about your credit profile.

Question 1 of 14

Have you lived in the UK for at least the last 3 years?

Disclaimer: The results of the credit guide are an estimation of a credit rating and are subject to change.

Monthly payments

Now you know your likely credit score you can use our car loan calculator to work out how much money you can borrow depending on your monthly budget. Don’t worry you don’t need a calculator for this. We have provided a smart tool below that will do all of the sums for you. You simply need to decide how long you want the loan to run for, choose the appropriate credit category, your deposit and the amount you want to borrow. We will then provide you with the likely repayment levels for your car loan!

number number
number Deposit / Part Exchange
slider ball
number Price of Vehicle
slider ball

Total Amount Payable


48 Monthly Payments of


Representative APR *


Are you unsure about your credit status ?

GAP Insurance

Should your car be stolen or become written off, GAP Insurance will pay the difference between the amount paid by your insurance company and any finance still outstanding on the vehicle.

i.e. if you paid £10,000 for your car and your insurance pay out is £6,000, and your finance owed was £9,500: GAP insurance will pay the remaining £3,500.


Income protection Insurance provides you with the reassurance that you will be able to make your necessary payments should anything happen to you or your job.

If you were to fall sick, have an accident or lose your job, would you still be able to make the payments each month?

Read our Income Protection Insurance page for more details.

* APR's stated are for illustration purposes only – a full quotation to SECCI compliance available on request

†† Disclaimer: Quotes generated by this 'Car Finance Calculator' are powered by the finance settings chosen by the user. All the quotes are based on prime interest rates, and are subject to change. In addition the quotes do not take into account any customer information or circumstances which can affect an individuals chance of getting finance for a vehicle. The figures provided by the Car Finance Calculator are quotes and do not represent an acceptance for a loan of any kind. As the quotes are subject to a users personal circumstances and lender requirements, full confirmation on the price to be paid (including all related lender fees) will be detailed in the lenders customer documentation pack

Finding the right Car

VW Golf

With the boring (but vital) finance parts out of the way, you should now know how much you are able to borrow for a car and the amount you will need to pay each month. Now for the fun bit... choosing your new car!

This part of the process is fun but can also be tiresome and time consuming. Depending on how specific the model is that you are looking to buy, it might take a lot of your time to find the right car. Then you need to contact the seller, understand the history of the car and make sure it is local to where you live, or at least within reasonable travelling distance.

If this sounds like your kind of thing then we will be happy to work along side you to find your vehicle. If the process we have just described sounds like a nightmare, don’t worry, help is at hand. The Creditplus customer advisors are experts in sourcing vehicles to the exact specification of our customers. Once you have applied with us we will ask you to either hotlist some vehicles from our car search or to just give us a description of what you are looking for. We will then find you a selection of appropriate cars that you can choose from.

Ready to apply for a car loan? It will only take a couple of minutes to provide you with your instant online decision!

Who are Creditplus?

The Benefits of Creditplus Include:

  • Instant online lending decision
  • We search the car loan market to offer you a competitive deal
  • Download your documents online
  • FCA (Financial Conduct Authority) regulated
  • 7 day money back promise
  • Specially tailored deals for car finance with bad credit
  • Part exchange your used car
  • All credit profiles considered for lending, even a poor credit score

Creditplus are car finance specialists based down on the South coast of England, in Poole, Dorset. Since 2003 Creditplus has been providing car loans to consumers from all over the UK. At the end of 2011 Creditplus had helped their customers to buy over £48 million pounds worth of cars by supplying car loans. As a company we have developed bespoke functionality to help our customers receive the very best possible service. We are the only online provider that can offer our customers an instant loan decision.

We are fully regulated by the FCA so you can rest assured that you will be provided with honest and fair information about your loan. We will help to organise your loan by comparing 50 different lending options before helping you to find your perfect car from our national network of thousands of dealers that are based throughout the UK.

Hundreds of thousands of consumers have used Creditplus to find and fund their vehicles. We provide an ethical approach to car loans to ensure that our customers will be happy with our service. If you want to find out more about our services why not check out the honest feedback we have received from customers on Review Centre.

You should now have all the knowledge you need to make an informed decision about a car loan. All that is left for you to do now is apply. When you apply with Creditplus we compare 50 different car loan options before providing you with an instant online loan and you should be driving your new car within 2 – 5 days.

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