So you’re now contemplating purchasing a car on borrowed funds. Broadly the choices of finance available in such a situation are:

• Secured loan
• Unsecured loan
• Car Finance

A secured loan is available only to home owners. If you own a home and have excellent credit status, a secured car loan is the best option in terms of cost of finance (read interest costs). However, such borrowing often consumes considerable time as lenders need to go through a lot of steps before issuing the cheque in your name. These include credit checking, writing to your mortgage lender and gaining the approval and completing the formalities of second charge on the home etc. If you’re prepared to wait out, it’s still worth it.

If, however, you are in a hurry, the options left are an unsecured car loan and car finance. An unsecured loan, as the name implies, is given with no security. Implicit in such lending is the high risk. Lenders often charge very high interest on such loans. Depending on your credit status, this can vary, but as a rule the cheapest unsecured loan is more expensive than the most expensive secured loan. There are unsecured lenders like Welcome Finance who specialise in giving loans to those with poor credit history. So those with impaired credit history often go to such lenders and opt for unsecured car loans.

Between secured car loans and unsecured car loans lies car finance (car credit). Secured against the value of the vehicle, the interest rate of car finance is generally higher than secured loan but lower than unsecured loan. Interest rate, however, varies with the credit status of the individual. Other factors like employment status, marital status, annual income etc. too are considered while arriving at the loan amount and rate of interest. A car finance or car credit also has the following additional advantages which makes it a big draw with car buyers:

• Quick process
• Easier to obtain than a loan.
• Lenders offer incentives such as part exchange, cash back, free insurance etc. to make their offer more attractive.

Car finance or car credit is advised for people who satisfy one or more of the following:

• Home owners with bad credit or do not want to take on an additional liability on their home for whatever reasons.
• Tenants
• Short of time

Irrespective of which option is suited for you, you’re advised to spend some time researching the market before deciding on which lender to go for. That will be time well spent.

With credit availability declining and interest rates trending up, car finance companies too are tightening their lending norms. Welcome Finance, leaders in the sub-prime car finance market has recently announced withdrawal of funding from independent car dealerships, running into 100’s across the United Kingdom. Welcome Car Finance will now be available for those purchasing cars from the company’s showrooms numbering twelve. This would mean that several borrowers with poor credit status will find it more difficult than ever to get finance for purchasing their cars.

Other lenders like ACF (formerly Approved Car Finance) and Ucan have not made any changes to their lending norms yet, but if the interest rate continues its present trend, they too are expected to be more rigid in their lending.

Car credit is a term synonymous with car finance. A car finance is a loan that is secured against the value of the car that is often selected from the finance company’s showroom. In other words, car credit comes as a ‘car plus finance’ package deal. Car credit companies often offer several incentives to potential customers to make their deals attractive to them. These may include free insurance, cash back, part exchange and other freebies. The leading car credit companies in the UK are:

Welcome Car Finance

Approved Car Finance (Now ACF Car Finance)

Ucan Car Credit

All these companies offer guaranteed car credit if you satisfy the following conditions:

- Are a UK resident

- Over 18 years of age

- Have a valid full UK driving licence

A guaranteed car credit offer becomes relevant when you have a less than perfect credit history. High street lenders are often unwilling to advance loans to people in such financial circumstances. This is where guaranteed car credit lenders come to the picture. Their interest rates may be higher than that of the mainstream lenders but you stand the best chance to get finance from these lenders. The interest rate charged will depend on your credit history (of course!), repayment capacity and the term of the loan.

Though it is often called guaranteed car credit, no lender will be willing to give money to someone who has no clear source of income and hence dubious capacity to repay. As such an annual income of at least £5,000 is often insisted upon. If you have poor credit circumstances have a regular income with sufficient repayment capacity, these lenders are there to help you out.