You’ve probably seen loads of finance deals out there for new cars, but what if you’re not in the market for a brand new model? Well, the good news is that you can also buy a used car on finance.
Cash is always an option if you want to buy a new or used car, but there are plenty of options available for financing a used car to suit a range of budgets. This handy guide will walk you through the different types of finance for used cars, including their pros and cons.
Finance options on used cars
The finance options on used cars are broadly similar to those you’ll find on new models, although leasing is less readily available on the second-hand market.
Buying a used car on Hire Purchase (HP)
If you buy a used car using Hire Purchase finance you’ll pay an initial deposit and a set number of monthly payments over an agreed period. Once your finance term ends, you will own the car to keep or sell on.
The amount you pay each month will depend on the car’s price, the size of the deposit and the length of your finance term. If you pay a large deposit, your monthly payments will be reduced and vice versa.
The car will be legally yours as soon as you’ve paid the final payment.
There are a few advantages to HP finance, including:
- There are no mileage limits over the course of the agreement
- You own the car at the end with no big final payment
- HP is available on a wider range of cars than PCP (Personal Contract Purchase)
Hire Purchase isn’t without its drawbacks, however. For example:
- The monthly payments tend to be higher because you’ll own the car at the end
- It may not be ideal if you plan to change your car every few years
- The interest rate may be higher than with a PCP deal
Buying a car on Personal Contract Purchase (PCP)
Used-car PCP finance requires you to pay an initial deposit and a set number of monthly payments – similar to HP finance – but you’ll have to return the car to the dealer once your finance term ends. If you’d rather keep the car, you can buy it outright for an optional final fee, often known as an ‘optional final’ payment or ‘balloon’ payment.
The balloon payment is based on what’s known as the ‘guaranteed minimum future value’ (GMFV). In other words, the predicted value of the car when your agreement ends. The mileage of the car will have an impact on the GFMV, so you’ll agree a mileage limit with the dealer at the start of your contract.
The higher this mileage limit, the higher your monthly payment, and there will be a fee for going over it. This is usually paid in pence per mile.
If you’re not planning on buying the car at the end of the agreement, you can either give it back and walk away or take out a new finance agreement on another car. You need to make sure the car is in good mechanical and cosmetic condition when you hand it back. There could be fees to pay if it’s damaged beyond usual wear and tear.
Some advantages of buying a used car on PCP include:
- It’s easy to swap your car for a new one every few years
- The monthly payment will typically be lower than HP finance because some of the car’s value is deferred to the optional final payment
- You don’t have to worry about the cost of depreciation because you don’t have to sell it on at the end
However, PCP finance on a used car has its cons, including:
- PCP deals are only typically offered on newer models
- There are more terms and conditions to worry about, such as mileage limits
- It may not be ideal if you plan on keeping the car at the end due, to the large final balloon payment
Where can I buy a used car on finance?
Nearly all main dealers will offer a wide range of finance options on their approved used cars, you’ll just have to discuss payment options with the salesman once you’ve decided which car you want.
Buying from a dealer’s approved used stock has other benefits too. Most will come with some sort of warranty, so you’ll have more protection in the event that something goes wrong.
Some smaller used-car dealers will also offer finance options on their stock but they may also have higher interest rates. You’ll want to shop around first.
Many banks offer Hire Purchase and Personal Contract Purchase deals for used cars as well. If you go for one of these, the bank will pay the dealer and you’ll make your monthly payments directly to the bank.
If you’re planning on buying a used car from a private seller, you won’t be able to use HP or PCP finance. Instead, you can pay in cash or consider a personal loan from a bank.
Is used car finance right for me?
This will come down to your own financial situation and what you use your car for. You’ll also want to consider your budget and check your credit score, as this could affect your eligibility for a finance agreement. It’s worth remembering that cash payments are always an option.
Buying a second-hand car on finance may be right for you if:
- You don’t want to shell out all your savings on one go
- You want to swap your car every few years
- You don’t want to worry about the heavy depreciation you get with a brand new car
If you’ve decided that financing a used car isn’t for you, there are a few other options you may want to consider. You could pay in cash or get a personal loan from the bank. Depending on your credit score and your relationship with your bank you may be able to get a competitive interest rate.
You’ll be free to do what you want with the car as well because you’ll own it from the start. If you do sell the car though you’ll still have to repay the remainder of the loan.
You could also consider leasing a new car. This works in a similar way to PCP finance. You’ll pay an initial deposit before a series of monthly payments over an agreed amount of time. The difference is that there’s no option to buy the car at the end. You just hand it back and either start again with a new contract or walk away.
Because there’s no option to purchase the car outright, the monthly payments on a lease deal tend to be lower than on a PCP or HP agreement. The drawbacks are much the same as with a PCP deal, however, because you’ll have a mileage limit and there will be fees to pay if you damage the car.
Buy your next used car through carwow
If you’re looking for a great deal on a used car, you can find one through carwow. Our trusted dealers have hundreds of quality approved used models available and, because they’re all manufacturer-backed, they can offer finance deals on both new and used cars.
Chances are, if you’re looking to buy a new or used car, you need to sell your current one. Well the good news is that you can sell your car through carwow as well, and you’ll get a great price for it. It’s just a case of telling us a bit about your car, uploading some photos, then watching the offers roll in. Tap the button below to get started today.