What Is a Good Interest Rate for Car Loan in 2020?
It is always exciting to search for a new vehicle whether it is a van or car. Especially, customers are more enthusiastic while buying a new car. They want to take a test drive and pay more attention to its features. It’s always fun to visualize yourself on the driving seat with a new vehicle. However, financing is the part where consumers should be more careful. But they usually ignore the terms and conditions and interest rates while singing the loan.
Why Does Interest Rate Matter?
Though the excitement of getting a car is overwhelming, you should remember that it can cost you. You may have to overpay in terms of interest if you fail to get the right loan. It’s better to look at interest rates and suitable options to finance your car.
Find a suitable deal for yourself and get a vehicle accordingly. You can also get Second Hand Car Finance in UK if you are short on money. This way you can save thousands of pounds which otherwise you’ll be paying as interest.
Interest rates for Different Loans
Here are your options for buying a car with different loan types.
These are the loans that a person can get from a lender or bank. You’ll get an agreed sum that you have to pay within a set time period. The borrower will return the amount in fixed amounts usually within 1 to 5 years. However, the interest rates vary and depend on how much amount you are getting.
For a larger amount, the interest rate will be lower and the time period will be longer. Whereas you’ll have to pay a higher interest for a smaller loan. For example, the interest rate for an £11,000 loan will be 5% after a 10% down payment.
Hire Purchase (HP)
This is a suitable loan option if you want to own the car and a loan without mileage limits. You’ll have to pay 10% of the total car cost before getting a loan. This is a suitable plan for both used and new car loans. Plus, hire purchase is a secure loan plan against the car.
The interest rate for a Hire Purchase car loan usually varies from 4% to 8%. Plus, this loan type offers higher protection to the consumers as compared to a personal loan.
Personal Contract Plan (PCP)
This is the most common type of loan to buy a car. Around 80% of total cars are financed by Personal Contract Purchase. This is suitable for people who regularly change their cars want to pay lower monthly interests. The interest rates depend on three main factors.
The first factor is how much upfront amount you are willing to pay. Other factors are your estimated annual mileage and length of the contract. Usually, customers pay 10% of the total price of the car. Whereas annual interest rate ranges from 4% to 7%.
Personal Contract Hire (PCH)
This is suitable for those who want to ride new vehicles without owning them. You would pay a fixed amount against a fixed annual mileage for 2 to 4 years. PCH is like a lease because the borrower can’t but the car. You may also get a penalty if you drive the vehicle more than the agreed mileage.