A loan for a car is either a secured (often called a car loan) or unsecured loan. A secured loan or car loan is when the finance company retains ownership of the car until all of the money borrowed for the car loan is repaid and is therefore similar to hire purchase. An unsecured loan is when the loan attaches to the business (not the car) and the business owns the car from the date of purchase. If there is a default on a secured loan, the finance company takes the vehicle. If the business defaults on an unsecured loan, the finance company will pursue the company directly and take legal action for repayment of the loan. Unsecured loans are often more expensive than car loans and will have a higher APR.
We do offer business loans but the financial position of the business will help determine their final cost.
Advantages of Buying a Car Using a Loan
- The business owns the vehicle outright from the beginning and is able to modify it
- Unlike Contract Hire or Purchase, there are no mileage limits and there are no additional costs if the vehicle is used intensively
- If the vehicle does not need replacement every few years and it is owned for a long period of time, then a loan is the cheapest form of financing over that extended period
- It can be used to buy a used vehicle
- In the event of default on an unsecured loan, the vehicle (which may be business critical) is not rapidly repossessed but legal action must first be pursued
Disadvantages of Buying a Car Using a Loan
- An unsecured loan will be more expensive than hire purchase
- The loan will likely incur a redemption penalty if it is paid off early
Compared with contract hire or contract purchase:
- A larger monthly payment will be required
- A large deposit will likely be required upfront
- Loans and vehicle ownership will be more expensive, assuming the vehicle fleet is replaced every few years
- The ownership cost of any vehicle held for a long period will fall unevenly in the period of the initial loan, and budgeting (especially when time for a replacement) is more complex than the regular monthly cost of contract hire or contract purchase.