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If you’re planning to take out an unsecured loan in order to a buy a car it would be a good idea to shop around by comparing loan offers from different lenders, because interest rates on unsecured personal loans can vary significantly from one loan company to the next.

Of course, if you have a poor credit history the interest rate is likely to be higher no matter which lender you go with, while borrowers with good credit histories can expect most lenders to offer them more favourable loan terms.

However, the lender in question also has a significant impact on the interest rates you’re quoted, which is why it pays to shop around when you’re looking for UK car loans.

Is this the same as buying a car on finance?

No, car finance is a type of loan agreement where the car you’re purchasing is used as security against the debt you take out to buy the vehicle. As such, when you buy a car on finance you’re actually taking out a secured loan rather than an unsecured loan.

So my car won’t be used as security if I take out a personal loan in order to buy a car?

No, if you’re taking out a personal loan then that debt won’t be secured against any asset. The fact that you plan to use the money to buy a car after you receive the cash is merely your reason for taking out the personal loan, but it doesn’t mean that car automatically becomes security against the debt.

Is this type of unsecured loan more expensive than if I was buying a car on finance?

Yes, while interest rates can vary considerably from one lender to the next, in most cases an unsecured UK car loan will carry a higher interest rate than a secured loan from the same lender. The reason for that is fairly straightforward – when a secured loan uses an asset like a home or a vehicle as security it’s less risky for the lender, which means they can afford to offer more favourable interest rates on secured loans.