A car loan can mean a personal loan used to buy a car. People also use the term for finance linked to a particular car, such as HP or PCP.
Check which agreement you are looking at. Ownership, return rights and what happens if you miss payments can be very different.
How does a personal loan for a car work?
A lender gives you money, which you use to pay the seller. You repay the lender in monthly instalments, usually with interest, over an agreed term.
With an unsecured personal loan, the borrowing is not secured against the car. You own the car when you buy it, even while you still owe the lender money.
Loan amounts, interest rates and terms vary by lender. The amount you can borrow depends on the lender's checks and what it considers affordable.
Check any restrictions on how you can use the loan. Do not commit to buying a car before you know how you will pay for it.
How are car loans different from HP and PCP?
Hire purchase (HP) spreads the car's cost over monthly payments, usually after a deposit. The finance company owns the car until you complete the required payments.
Personal contract purchase (PCP) leaves a larger optional final payment until the end. You must pay it, plus any purchase fee, if you want ownership.
PCP usually offers the option to return the car at the planned end instead. Mileage and condition charges may apply.
- Personal loan: you own the car when you buy it.
- HP: ownership follows all required payments.
- PCP: ownership requires the optional final payment too.
Read HP vs PCP and how car finance works for more on these differences.
Can I sell a car bought with a loan?
If you bought the car with an unsecured personal loan, you can generally sell it because you own it. Selling does not cancel or transfer the loan.
You still owe the remaining balance, even if the car sells for less than you borrowed. Ask the lender for a settlement figure if you want to repay early.
With HP or PCP, you cannot sell the car while the finance company owns it. Settle the finance and confirm ownership before selling.
Do not assume the vehicle registration document proves ownership. It records the registered keeper, which is a different role.
Does a personal loan cost less than car finance?
It depends on the terms offered to you. A personal loan is not always less expensive than HP or PCP. Your credit record and finances affect the offer.
Check the amount borrowed, APR, term, fees and total amount payable. For PCP, include the optional final payment if your aim is to own the car.
A longer term can reduce monthly payments but increase total interest. You may also still be repaying the borrowing when the car needs more repairs.
Keep the borrowing amount and term consistent when checking costs. A smaller monthly payment alone does not tell you which option costs less.
Decide what you can afford before choosing the car. Leave room for costs that arrive less often, such as tyres or an annual service.
The calculator gives estimates. Actual payments depend on the terms offered by a lender.
Do I need a deposit for a car loan?
An unsecured personal loan does not usually require a car deposit. You can use savings alongside the loan to reduce the amount borrowed.
HP and PCP often involve a deposit. Options without one may exist, but availability and terms vary by lender.
Borrowing more can increase monthly payments and total interest. A deposit does not mean a lender will accept an application.
Keep enough savings for essential bills and unexpected costs. Read car finance without a deposit before deciding how much cash to use.
Can I use a personal loan for a private sale?
Many personal loans can fund a car bought privately, subject to the loan's terms. HP and PCP usually involve a seller and car that meet the lender's rules.
A private sale gives you fewer consumer rights than buying from a trader. Check the seller's identity, the car's history and whether finance is still outstanding.
Consider an independent inspection before paying. A loan does not confirm that the car is safe, reliable or worth the asking price.
What credit checks will a lender make?
A lender checks your credit history and whether repayments are affordable. It may ask for proof of income, address and spending. Requirements vary.
Ask what type of search will happen and when. A hard search leaves a record that other lenders can see and can affect your credit score.
A quote request and a full application may involve different checks. Do not assume that an online form means a particular type of search.
A lender can decline an application. Read car finance with bad credit if past payment problems are a concern.
Can I cancel or repay a car loan early?
Where the Consumer Credit Act 1974 withdrawal right applies, you have 14 days to withdraw from the credit agreement. Check the agreement for the start date.
You must repay the credit and accrued interest within 30 days of giving notice. Withdrawing from the loan does not automatically cancel your car purchase.
The Act also gives early settlement rights for covered agreements. Ask for a written settlement figure, including any permitted charges, before paying.
Eligible HP and PCP agreements have voluntary termination rights. Liability is normally limited to half the total amount payable, provided you have taken reasonable care of the car.
You may need to pay up to that halfway figure. Arrears or damage can leave further sums due. PCP's optional final payment counts towards the total.
Voluntary termination does not apply to an unsecured personal loan. Returning or selling the car does not end that borrowing.
What happens if I cannot keep up payments?
Missed payments affect your credit record. With an unsecured loan, the lender cannot simply repossess the car under the loan agreement, but it can take court action to recover the debt.
With HP or PCP, the car may be taken back if you do not keep up payments. Losing the car may still leave an unpaid balance.
For eligible HP and PCP agreements, paying a third of the total amount payable generally means the lender needs a court order to repossess without your consent.
Contact the lender early if money becomes tight. MoneyHelper can help you find free debt advice.
Who helps if something goes wrong?
With HP or PCP, the finance company is responsible for the car's quality under the Consumer Rights Act 2015. With a separate personal loan, car quality complaints usually go to the seller.
For a complaint about borrowing, contact the lender first. If unresolved, the Financial Ombudsman Service may be able to help.
How do I ask for a car finance quote?
Fill in the quote form. A car finance specialist then gets in touch, explains the options and gives any quote and any advice.
The lender decides any application and provides any finance. Check which type of borrowing is being discussed before proceeding.
Updated 7 November 2026
