Cheapest car loans

For many people, buying a car will require navigating a number of different financing options. Choosing the right option for you and your finances is key.  A personal loan is an attractive option for buying a car because it means you will own the vehicle outright from the start, unlike with other financing options. In this article you will find a selection of the cheapest car loans in the UK, plus all of the important information you need to know about borrowing money to purchase your next car.

What is a car loan?

A car loan is a type of unsecured personal loan that is applied for with the intention of using the money to buy a car. It could be a second-hand car or a brand new model and the loan could be used towards the entire cost of the car or just a portion. A car loan is a form of financing that offers a great deal of flexibility.

As well as a loan, there are a few different ways you could finance a car purchase and these include Personal Contract Purchase (PCP), Personal Contract Hire (PCH) or Hire Purchase (HP). You can learn more about each by reading our dedicated pages or checking out our article 'Buying a car: what are the best finance options?'.

Like any other personal loan, car loans need to be repaid with interest. The rate of interest you can achieve will depend on your credit history. Applicants with a good credit score will usually be able to access the cheapest car loans, while those with bad credit scores may need to settle for a higher rate, a longer term or find an alternative financing option.

How to find the best loan for you

Comparing different loans is a key part of getting the best deal for you. Money to the Masses has made this process easier by partnering with Creditec*, an online comparison service. Instead of trawling through countless different provider websites hunting for the best deal, Creditec’s personalised search results will show you the key details you need to know, all in one place. If you are eligible, your tailored list will feature the loans that you are more likely to be accepted for, cutting down the chance of any applications you make being rejected should you go on to complete a full application with the provider. Your search results are built using a soft credit search, so there will be no damage to your credit score. Click on this link to get started*. If you are not eligible for a loan with any of the providers on the panel then you may be shown a variety of alternative products that may be suitable for you. You are under no obligation to continue with them if you feel they are not suitable for your circumstances.

Cheapest car loans – September 2024

We have used the representative examples of repaying a £1,000 loan over three years, a £5,000 loan repaid over five years, a £10,000 loan repaid over five years, repaying a £20,000 loan over five years and repaying a £25,000 loan over five years to source the figures in this table. Borrowing more or less will often change the advertised rate of interest, as will altering the loan term. It is important to remember that the loan amount and rate you are ultimately offered will be based on your credit history and financial circumstances, so may differ from the representative APR you see below.

Cheapest car loans for £1,000

Loan provider	Representative APR (from)	Available loan term	Available loan amount	Monthly payment	Eligibility checker?
Santander	13.5%	1 - 5 years	£1,000 - £25,000	£33.56	No
M&S Bank	14.9%	1 - 7 years	£1,000 - £25,000	£34.16	Yes
AIB (NI)¹	16.4%	1 - 5 years	£1,000 - £25,000	£35.01	No
HSBC	16.9%	1 - 5 years	£1,000 - £25,000	£35.02	No
Zopa	22.9%	1 - 5 years	£1,000 - £25,000	£37.57	Yes
TSB	27.9%	1 - 7 years	£300 - £50,000	£39.69	No
Halifax	29.7%	1 - 7 years	£1,000 - £50,000	£40.44	Yes

Representative APR is based on a 3-year loan term

¹You must be an existing personal current account customer with AIB (NI) and registered for Online Services

Cheapest car loans for £5,000

Loan provider	Representative APR (from)	Available loan term	Available loan amount	Monthly payment	Eligibility checker?
Tesco Bank	7.2%¹	1 - 10 years	£1,000 - £35,000	£98.94	Yes
Santander	7.2%	1 - 5 years	£1,000 - £25,000	£98.94	No
AIB (NI)²	7.9%	1 - 5 years	£1,000 - £25,000	£100.83	No
HSBC	9.9%	1 - 5 years	£1,000 - £25,000	£104.95	No
M&S Bank	9.9%	1 - 7 years	£1,000 - £25,000	£104.95	Yes
TSB	13.9%	1 - 7 years	£300 - £50,000	£113.99	No
Halifax	17.9%	1 - 7 years	£1,000 - £50,000	£123.14	Yes
Zopa	22.9%	1 - 5 years	£1,000 - £25,000	£187.68	Yes

Representative APR is based on a 5-year loan term

¹Clubcard members receive a preferential rate, non-members will get from 7.9% and pay £100.49 a month

²You must be an existing personal current account customer with AIB (NI) and registered for Online Services

Cheapest car loans for £10,000

Loan provider	Representative APR (from)	Available loan term	Available loan amount	Monthly payment	Eligibility checker?
Tesco Bank	6.1%¹	1 - 10 years	£1,000 - £35,000	£193.02	Yes
TSB	6.2%	1 - 7 years	£300 - £50,000	£193.47	No
Santander	6.2%	1 - 5 years	£1,000 - £25,000	£193.47	No
M&S Bank	6.2%	1 - 7 years	£1,000 - £25,000	£193.47	Yes
Halifax	6.6%	1 - 7 years	£1,000 - £50,000	£195.23	Yes
HSBC	6.6%	1 - 5 years	£1,000 - £25,000	£195.23	No
AIB (NI)²	7.1%	1 - 5 years	£1,000 - £25,000	£197.85	No
Zopa	22.9%	1 - 5 years	£1,000 - £25,000	£269.40	Yes

Representative APR is based on a 5-year loan term

¹Clubcard members receive a preferential rate, non-members will get from 6.5% with monthly repayments from £194.79

²You must be an existing personal current account customer with AIB (NI) and registered for Online Services

Cheapest car loans for £20,000

Loan provider	Representative APR (five-year term)	Available loan term	Available loan amount	Monthly payment	Eligibility checker?
Tesco Bank	6.1%¹	1 - 10 years	£1,000 - £35,000	£386.05	Yes
TSB	6.2%	1 - 7 years	£300 - £50,000	£386.94	No
M&S Bank	6.2%	1 - 7 years	£1,000 - £25,000	£386.93	Yes
Santander	6.4%	1 - 5 years	£1,000 - £25,000	£388.70	No
Halifax	6.6%	1 - 7 years	£1,000 - £50,000	£390.47	Yes
AIB (NI)²	7.1%	1 - 5 years	£1,000 - £25,000	£395.69	No
HSBC	7.4%	1 - 5 years	£1,000 - £25,000	£397.54	No
Zopa	22.9%	1 - 5 years	£1,000 - £25,000	£538.80	Yes

Representative APR is based on a 5-year loan term

¹Clubcard members receive a preferential rate, non-members will get from 6.5% with monthly payments from £389.58

²You must be an existing personal current account customer with AIB (NI) and registered for Online Services

Cheapest car loans for £25,000

Loan provider	Representative APR (five-year term)	Available loan term	Available loan amount	Monthly payment	Eligibility checker?
Tesco Bank	6.1%¹	1 - 10 years	£1,000 - £35,000	£482.57	Yes
TSB	6.2%	1 - 7 years	£300 - £50,000	£483.67	No
Santander	6.4%	1 - 5 years	£1,000 - £25,000	£485.88	No
M&S Bank	6.9%	1 - 7 years	£1,000 - £25,000	£491.40	Yes
Halifax	6.6%	1 - 7 years	£1,000 - £50,000	£488.08	Yes
AIB (NI)²	7.1%	1 - 5 years	£1,000 - £25,000	£494.61	No
HSBC	7.4%	1 - 5 years	£1,000 - £25,000	£496.92	No
Zopa	22.9%	1 - 5 years	£1,000 - £25,000	£673.50	Yes

Representative APR is based on a 5-year loan term

¹Clubcard members receive a preferential rate, non-members will get from 6.5% with monthly payments from £486.97

²You must be an existing personal current account customer with AIB (NI) and registered for Online Services

Car loans for bad credit

The strength of your credit history is a key part of getting any personal loan, but having bad credit does not necessarily mean you will not be able to take out a car loan. That being said, with bad credit you are likely to be offered a higher interest rate than what you see on this page. This is because the advertised rate – the representative APR – is the APR that the lender expects at least 51% of successful applicants to be offered, not everyone.

If you cannot get the rate you want, you may need to look into alternative car finance options or explore specialist bad credit borrowing. We provide some alternative car financing options at the bottom of this page

How a car loan works

There are five key steps to taking out a car loan.

1. Work out what you need - This is not a step to rush through. You will need to decide what type of car you want, whether it will be new or used, and how much you can afford to spend. Make sure to only borrow what you can afford to repay.
2. Decide on a loan term - Key to the affordability of your loan will be how long you choose to pay it back over. With most big-name lenders you will have the choice of one to five years or one to seven years, though some will stretch to ten. The longer period you spread your repayments over, the less you will pay each month but the more interest you will pay overall.
3. Pick the best deal - You can see the cheapest car loans for a range of different amounts on this page. Make sure to choose a deal that is affordable for you and provides the loan amount you need. The online application should be a quick and simple process and you can expect the money to be paid out soon after you are accepted.
4. Buy your car - With the money in the bank, you can get the keys to your new car. Remember that paying with money from a personal loan does not offer the same protections that you would get from a credit card purchase, or an HP or PCP agreement.
5. Start repaying your loan - Your scheduled monthly repayments will usually start straight away, sometimes even before you have completed your vehicle purchase. Make sure you have a direct debit set up so that you do not miss any repayments.

The key figures in a car loan

Here are the key figures to pay attention to when you compare car loans:

• APR (annual percentage rate) - The cost of borrowing the money in the first year. This broadly defines which deal is the cheapest and includes interest plus any standard fees.
• Representative APR - The APR that the lender expects at least 51% of successful applicants to be offered. It is a useful way to compare providers at the start of your comparison, but you may ultimately get a higher or lower figure.
• Loan amount - How much you are borrowing. Most of the providers on this page will lend between £1,000 and £25,000. Some people may be able to borrow much more, but others much less, depending on their financial circumstances and credit history.
• Loan term - The period the money is repaid over. The lenders in this article mostly offer between one to five and one to seven years, but longer terms may be available.
• Loan fees - What you will be charged in addition to repaying what you have borrowed with interest. Fees will vary between lenders, so check before you apply.
• Early repayment charge - An extra charge some lenders add on if you try to repay your loan in full before the end of the loan term.
• Credit score - A numerical rating of how reliable or trustworthy a borrower you are, based on your credit history. Read our top tips to improve your credit score before you apply.

How much can I borrow with a car loan?

The maximum amount you can borrow with a car loan will be decided by how your financial circumstances and your credit history fit with your chosen lender's criteria. The data they have on you will need to make it clear that your income is high enough to cover the monthly repayments and that you are trustworthy enough to repay the loan.

Keep in mind that there will also be an upper and lower limit on what your chosen provider will lend. Most major lenders will cap personal loans at £25,000 or £50,000, so any six-figure cars may be out of reach with a loan. If you have your heart set on a particularly pricey vehicle, you may need to look at alliterative financing options.

If you want to borrow below the lower limit of most high street lenders – usually £1,000 – it may be worth considering paying for your car with a credit card. This could be because the vehicle you have in mind is particularly cheap or because you only want to borrow enough to cover part of the cost. With a 0% purchase card, you could benefit from not having to pay interest or earn valuable rewards or cashback. You would also benefit from Section 75 protection if something went wrong.

What can I use a car loan for?

You can use your car loan to buy any vehicle that catches your eye, so long as a lender is willing to lend you that much money and you can afford the monthly repayments. It could be a brand new model or the cheapest car on the lot at your local dealership, the choice is yours.

In fact, once your application is approved and the money is in your account, you could choose to spend the loan on something else. This might be a sudden emergency expense, or you could choose to repair your current vehicle rather than buy a new one. You could choose to buy a cheaper car and put the rest of the loan towards something else. The flexibility of a personal loan is such that you can pivot to prioritising whatever is most urgent at that moment.

Of course, the limit to that flexibility is that you cannot break your lender's rules – which usually ban spending for gambling, business purposes, illegal activity or buying property – and you should not lie about your reason for taking out the loan when you apply.

Pros and cons of a car loan

Here are the main pros and cons to consider when weighing up a car loan against other vehicle financing options.

Pros of a car loan

• Spread the cost - Instead of an upfront payment, steadily pay for your car over a few years.
• You own the car - Unlike with other car finance options, the vehicle will be wholly yours from day one.
• Boost your credit history - The regular repayments you make will be recorded on your credit file, which could open up a wider range of borrowing options in the future.
• Access a wider range of vehicles - A loan can be a good option for most budgets, from cars costing tens of thousands down to just a few thousand.
• You do not need a deposit - Unlike other car finance options, you do not need to make a cash deposit before you get your car.
• No mileage limit - Some car finance options restrict how you use your car, but a personal loan does not.
• No balloon payment - You do not need to make a balloon payment at the end of the agreement in order to own the car, which you would have to do with Personal Contract Purchase (PCP).
• Debt not secured against the car - The car loans on this page are unsecured loans and are not secured against the vehicle, unlike with PCP or Personal Contract Hire (PCH).

Cons of a car loan

• You have to pay interest - The major downside of any borrowing is that it is more expensive than using your savings once you take interest into account.
• You own the car - This is both a positive and a negative. The negative side is that you will have to foot the bill for costs such as repairs, tyres and servicing.
• Cheapest car loans only available to applicants with excellent credit scores - The cheapest car loans are likely to be limited to people with strong credit scores.
• Missed payments can damage your credit history - Missing a payment on your car loan will leave a mark on your credit file, which will likely make future borrowing more difficult. You may also have to pay additional fees and charges.
• No Section 75 protection - Only credit card purchases benefit from Section 75 protection, which makes the provider equally liable with the vendor if you do not get what you pay for. However, car loan purchases will still be covered by the Consumer Rights Act, which means the vendor has an obligation to make sure the car isn't faulty and is fit for purpose.
• Less recourse if the vehicle is faulty - If the vehicle you buy is faulty, it can be more difficult to get it repaired or replaced than if your purchase was through a Hire Purchase (HP) or Personal Contract Purchase (PCP) agreement.

Alternatives to a car loan

Even the cheapest car loans will not be right for everyone. Here are a few alternatives to consider:

Personal Contract Hire

Personal Contract Hire (PCH) is another name for car leasing. As with other types of lease, you will not own the vehicle and must return it at the end of the agreed term with no option to buy the car.

PCH works best for people who want to keep extra costs to a minimum, as the monthly payment usually covers maintenance, servicing, tyres and road tax. The additional costs not covered are usually petrol and insurance, though you may need to pay more if the car is damaged or you exceed an agreed mileage limit.

Hire Purchase

Hire Purchase (HP) involves paying for a vehicle over an extended period through monthly payments. You will own the car once the final payment is made. The buyer can choose the length of the repayment period, typically 1-5 years. Just as with a car loan, a longer repayment period will mean paying less each month, but more overall. A key difference to a car loan is that the debt is, in effect, secured against the car. If you don't keep up with your repayments, the provider can seize the car.

Personal Contract Purchase

Personal Contract Purchase (PCP) is more complicated than other forms of finance and requires a few calculations to work out how much you will have to repay, and when. For example, you will typically have to pay at least 10% of the car's value as a deposit, or more if you have bad credit.

The exact amount you borrow is also complicated. The difference between PCP and HP is that you don't pay the whole cost of the car across your monthly payments. Instead, the amount you borrow is worked out by an assessment of how much the car is going to be worth at the end of the finance period – known as Guaranteed Future Value (GFV) – minus the deposit you pay. If you want to keep the car at the end of the finance deal, you will have to pay the GFV as a lump-sum payment, known as the balloon payment. After that, you will own the car outright.

Credit card

Using a credit card, preferably a top 0% purchase credit card, to pay for your car can mean having to pay no interest at all. You will have a set number of months to clear your debt before any interest charges are added on. If you can do this, there will be no interest to pay. Unfortunately, you will be limited by whether or not credit cards are accepted as a payment method by whoever you are buying the car from.

Savings

The most simple way to avoid the cost of borrowing is by dipping into your savings. Of course, you may need to wait a little while before you can get your new car and it could mean you have to stick to a tight budget. However, you will not need to pay interest, deposits or balloon payments – just the cost of the car. You may even discover that what you save grows faster than you expected, if you pick one of the top savings accounts.

 

 

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