Personal loan vs 0% finance: what’s the best new car finance for you?

Personal loan vs 0% finance: what’s the best new car finance for you?

If you need a new car, now’s a great time to get a loan to fund the purchase. With the base interest rate still at an all-time low in the UK, paying off a car loan now will hit your pocket far less than when interest rates were higher.

If you’re a Nationwide current account holder and you’ve already been accepted for a loan elsewhere, the building society is promising to undercut those rates by 0.5% representative APR. That means some of the best deals on the market from other banks, like HSBC and Sainsbury’s, at 3.3% representative APR, would cost you 2.8%.

You’ll need to provide Nationwide with proof of your acceptance for another loan, and that has to be from a bank or a building society rather than a peer-to-peer lender. You need to have a FlexPlus, FlexDirect, FlexAccount or FlexOne account to qualify, though you could apply to open one of these accounts at the same time as you apply for the loan. This will affect your credit score, however.

If you decide the hassle isn’t worth the savings you’d make, and want to borrow between £7,500 and £15,000, HSBC has a loan of 3.3% representative APR, a rate matched by Sainsbury’s Bank if you’re a Nectar card holder and can pay the loan back within three years.

The Clydesdale/Yorkshire Bank has a rate of 3.4% representative APR for loans between one and five years.

For those wanting to buy the car of their dreams, Sainsbury’s Bank continues the 3.3% representative APR rate to loans between £15,000 and £25,000. Think carefully about this, though, as it, too, has to be paid off within three years. You also have to be a Nectar card holder for this loan.

Make sure you qualify for the best rates. Take a look at your credit rating via a site like Experian, and see if there’s anything which can be done to improve it before you apply for a personal loan. Beware securing your loan against your home – obviously, it’s at risk if you can’t maintain payments.

If you’re looking for hire purchase finance from dealerships, there are a number of 0% finance deals on offer at the moment. These include 0% APR for new Seat Miis and Leons; Skoda Citigos, Octavias and Yetis; Nissan Qashqais; Kia Cee’ds; Mazda 3s and 6s; and Lexus IS 300hs, provided you have a substantial deposit and can make an extra final payment.

This does seem excellent value, and could beat a personal loan hands down when it comes to the overall interest you pay. The drawback is, of course, you won’t own the car outright until the last payment is made.

The level of deposit required varies from £3,194 for the £11,155 list price Mii, with a final £85 payment, to £8,000 for the £28,995 Lexus with a final payment of £14,813.

It’s also still worth haggling with dealerships. If they won’t move on the price of the car, or the deposit they need, ask for extras on the spec to be included in the price.

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