The length of time it takes for a secured loan to be processed and for you to receive your finance all depends on the type of loan you are applying for.
Mortgages can take three or four weeks to process from start to finish. These are relatively large loans, involving lots of paperwork, that can take time to fill in and process. The exact length of time will depend on how long it takes you to complete the application, and on your individual circumstances.
Other types of secured loan, such as homeowner loans (also known as a second charge mortgages), can also take several weeks to get due to the sizeable amounts of money involved.
If you're looking to buy a car with a loan, then car finance is a way of getting behind the wheel with less risk. Car finance arrangements such as hire purchase (HP) and personal contract purchase (PCP) usually take a day or two to process once an application has been submitted, but you can be approved in principle in just a few minutes.
When it comes to car finance, this is where the secured loan label can be confusing. Traditional car finance agreements, such as HP and PCP, share similarities with secured loans, and are often referred to as such, but are neither secured nor unsecured.
Let’s explore why.
With HP and PCP, the fundamental difference – when compared to a secured loan – is that they are vehicle hire arrangements. This means that until all the finance (plus any additional fees) has been repaid in full, the vehicle is owned by the lender and hired by the customer. Once the debt has been repaid in its entirety, the ownership then switches to you, if you want it to. With a mortgage or homeowner loan, or any other type of secured loan, you are the legal owner of the property or asset that is being used as collateral from the outset – the lender does not.
Hire purchase and PCP car finance arrangements are sometimes referred to as secured loans because the car – like the house with a mortgage – is at risk if you don’t make your repayments.
A car loan is a type of car finance that allows you to buy a vehicle outright. It is an unsecured personal loan (UPL), meaning that – unlike HP and PCP – there is no asset secured against it. You borrow a lump sum and use it to buy the car up front. You then make monthly payments over a prearranged timeframe until the loan is repaid. Because the loan represents a higher risk to the lender, you will need to have a stronger credit rating to qualify, and interest rates tend to be higher. Typically, it can take between one and five days for funds to reach you after making an application for a personal loan.
As with any big financial outlay, be sure you understand the differences between the various car finance options available, so you can make the best choice for your circumstances.
Car finance: implications for borrowers and lenders
With traditional car finance, and other kinds of secured loans, you tend to be offered lower interest rates than unsecured loans. You can often get longer, more flexible loan terms, too. This is because the lender has the reassurance of the asset to fall back on so is taking less risk. (Be aware: the longer it takes to repay a loan, the more you will pay overall.)
One of the appeals of secured loans and traditional car finance is that you don’t need to have an excellent credit score to qualify, as it's the asset that’s providing the security, not your own creditworthiness. Of course, the security is all for the benefit of lender, not you. You could lose your home or your car if you cannot make the repayments. As always, If you have a poor credit rating, think carefully about whether any kind of finance is the right choice for you.
We’ve put together a simple table to illustrate the most popular types of car finance and their processing times, and the differences between them.
What might delay an application?
A decision may be delayed if there are errors in the application, if you are self-employed or unemployed and need to submit further documentation, or if there are gaps in your credit file.
But there are things you can do to help the application process progress as smoothly as possible.
Firstly, do your research well before you reach the application stage. Make sure your finances are in good shape and that you are in control of any debts. Be absolutely certain about your choice of car finance product and how much you can afford to borrow. Ensure that all the documents you need are readily available and up to date. And finally, check your application carefully for mistakes before you click ‘send’.
In the end, the length of time it takes for any loan application to be approved is insignificant when compared with the duration of the loan term itself. When deciding which type of car finance to choose, there are many factors – including loan terms – to consider. Think about:
Whether you’d rather pay a higher monthly fee over a shorter period of time and benefit from a lower overall repayment figure.
Whether you’d rather have more manageable monthly repayments over a longer loan term, but a greater overall repayment figure.
Whether or not you want to own the car from the outset.
Here’s an example of how different loan terms can impact the amount of credit you’ll owe on the same amount.
Hire purchase agreement example
Paul borrows £10,000 to buy a car. He is offered an APR of 17.1%.
He chooses a 60 month (5 year) loan term based on a cash price of £10,000 with no deposit
Paul’s monthly repayment figure would be £243.33
The total cost of Paul’s credit would be £4,699.80
Paul’s total amount payable would be £14,699.80 (including a £50 documentation fee and a £50 option-to-purchase fee)
Unsecured personal loan example
Claire borrows £10,000 to buy a car. She is offered an APR of 17.1%
She chooses a 36 month (3 year) loan term based on a cash price of £10,000 with no deposit
Claire’s monthly repayment figure would be £351.03
The total cost of Claire’s credit would be £2,637.01
Claire’s total amount payable would be £12,637.01
Remember, there is no one-size-fits-all when it comes to car finance: take your time to choose a finance product with the terms that best fit your circumstances.
How much is a car on finance in the UK?
