There are three different types of car loan:

Manufacturers' schemes

You see these types of loans advertised by car manufacturer and these can be arranged either directly with them or via a local car dealership. Part exchanges on your current vehicle are normally accepted, and remaining balance is paid through a loan. As with a hire purchase scheme, you will not be owner of vehicle until you have repaid loan in full. If you default on repayments, car will be repossessed.

Hire purchase (HP)

This sort of car loan is arranged by car dealerships, and in effect it means that you are hiring car from dealer until final payment on loan has been paid. When loan has been fully repaid, full ownership of vehicle is transferred to you.

Personal Loan

You have option of either taking out a general personal loan, or a personal loan designed specifically for car purchase. The two are almost identical, but because a car loan is taken out specifically to buy a car, lender may offer you car-related incentives such as emergency breakdown cover, free motor insurance or special discounts on car accessories. Personal loans normally have lower interest rates than manufacturer schemes or hire purchase loans.

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You will find it a lot more difficult to get a business loan on favourable conditions if you are in dire need of cash. This is because your interest rate and amount you can be loaned will depend on your ability to pay your loan back. If your cash position is precarious, then you'll find that your interest rate is higher as lender would feel that they are taking more risk. Should your cash position be strong, then you'll get better loan conditions.

In order to improve your chances of getting a loan, you need to show lender why you will be reliable with your loan repayments. If you have accounts, show lender your earnings history, and if possible a realistic assessment of your future earnings potential. It will also help you if you have personally invested in your own business. This will show lender that your interest will be aligned with theirs, and you are both sharing risks in your business.

Should you be a sole trader, you will be responsible and liable for repayments. In a partnership, all partners will be jointly responsible. Finally, if you are a company, directors are likely to be liable.

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