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A guide to used car finance

Car financing isn’t just a way to buy a brand new set of wheels. You can also use it to spread the cost of a second-hand car. Find out whether used car finance is right for you by comparing options including PCP, hire purchase and personal loans.

Car financing isn’t just a way to buy a brand new set of wheels. You can also use it to spread the cost of a second-hand car. Find out whether used car finance is right for you by comparing options including PCP, hire purchase and personal loans.

Written by
Sajni Shah
Consumer expert on money and utilities
4 JUNE 2024
5 min read
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What is used car finance?

Used car finance is a catch-all term for various financing options that allow you to borrow the money you need to buy a second-hand car. If you can’t afford to pay for the vehicle outright, you can spread the cost across a more manageable payment timeframe.

The different types of car finance available, including hire purchase (HP) and personal contract purchase (PCP), give you options for owning the car at the end of the agreement or handing it back.

How does used car financing work?

The general principle of buying a used car on finance is the same as financing a new vehicle. However, the details may be slightly different to standard PCP or HP arrangements, with fewer discounts and incentives offered.

When you apply for car finance, the lender will carry out a credit check to help them decide whether you’re a responsible borrower and how likely you are to pay them back.

With most used car finance plans, if your loan is approved you’ll pay an initial deposit, typically 10% of the car’s price. You’ll then borrow the remaining balance from the finance provider and pay it back in fixed monthly instalments (with interest) over the length of the contract. Terms for car finance are typically between one and five years.

Is PCP used car finance available?

PCP is a popular way to finance a used car, although not all second-hand cars are eligible for this type of deal. That’s because their final value will be too low or too difficult to predict. Plus, you can’t get this option through a private sale.

With PCP used car finance, you put down a deposit and then pay regular monthly instalments that cover the car’s depreciation (how much it loses value over time).

At the end of the agreement, you can choose to:

  • Pay the final ‘balloon’ payment and keep the car
  • Part-exchange it for another vehicle
  • Return the car with nothing more to pay

A couple of things to watch out for – you’ll be charged for exceeding your agreed mileage limit. And your vehicle may be repossessed if you don’t keep up your repayments because the loan is secured against the car.

Other financing options for second-hand cars

As well as PCP, there are a few other car finance options to consider before buying a used vehicle, including:

Hire purchase

With HP, you pay an initial deposit and then fixed monthly instalments for an agreed period. The loan is secured against the car, but you’ll own the vehicle once you’ve made the final payment and paid any ‘option to purchase’ fees.

Monthly payments can be higher than PCP, but there won’t be an annual mileage limit or large final payment.

Personal loan

Buying a car with a personal loan lets you borrow money from your bank or building society rather than a car finance company.

You won’t need to put down a deposit, and you’ll be the legal owner of the car as soon as you buy it. This means there’s no restrictions on mileage and you could even sell the car before you’ve paid back the full loan amount if you want.

And unlike PCP and hire purchase, a personal loan is not secured against the car. However, you will need a good credit score to access the best interest rates.

0% credit card

A 0% purchase credit card allows you to buy a car on credit without paying any interest on what you owe for a set time. The aim is to pay off the balance before the interest-free period ends, when the card will revert to its standard rate.

Before choosing this option, check that your credit limit is high enough to cover the cost of buying a second-hand car. Plus, you’ll need to find a dealer that accepts credit cards as not all do.

Can I get used car finance with bad credit?

It’s certainly possible to get car finance for bad credit. But if you have a low credit score, your choice of finance deals may be somewhat limited and you’re likely to be charged a high rate of interest.

You may have a better chance of being accepted for hire purchase or PCP used car finance than a personal loan. That’s because the finance is secured against the car. But you’ll probably have to put down a deposit, unless you can secure a no-deposit car finance deal.

You need to be confident you can comfortably make your monthly repayments to avoid penalty fees.

How to find the best used car finance deals

Before applying for used car financing, consider these tips to get the best deal:

  • Set a budget – get an idea of how much you could afford to spend on a car using our car finance calculator. Remember to factor in running costs too, including car insurance, petrol and road tax.
  • Check your credit report – get any errors corrected and make sure you’re on the electoral roll to help build your credit score.
  • Save for a larger deposit – most used car PCP and HP deals will require a deposit. The larger this is, the less you’ll need to borrow.
  • Decide the term length – think about how long you want the loan to last for. The longer the term, the lower your monthly repayments will be, but you’ll pay more interest overall.
  • Note the APR – check how the annual cost of borrowing compares between different car finance options, including personal loans. Bear in mind the different terms and fees for each option.
  • Shop around – we can help you compare car financing options in minutes.

Car Finance 247 Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.

Above all, never feel pressured into signing a car finance contract straight away. Take time to digest all the terms and conditions before you complete the deal – and don’t be afraid to haggle on car price.

Compare car finance

Frequently asked questions

What are used car finance rates?

Car finance providers typically offer rates from around 9.9% APR on used cars (as of May 2024), but you’ll need an excellent credit score to get the lowest interest rates. Those with poor credit scores might be charged 25% or even up to 50% APR with some lenders.

APR represents the total annual cost of borrowing, and is a useful way to compare car finance deals. But the actual rate you’re offered will depend on your financial circumstances and credit score.

Is financing a used car a bad idea?

Using financing to buy a second-hand car does have its downsides. For starters, you’ll pay more for the car overall than if you bought it outright because you’ll pay interest on the loan.

And with some car finance options you risk losing the vehicle if you fail to keep up your repayments.

But if you can’t afford the upfront cost of a car, then using a financing deal could be the answer. In fact, there are plenty of used cars in great nick that won’t lose their value as much as a new car would.

Can I get 0% financing on a used car?

It’s more common to find 0% car finance deals for new cars. But it is possible to find them for used cars too, particularly at major dealerships.

If you’re offered a 0% finance deal, weigh up whether it’s really as good as it seems. Watch out for inflated car prices or hidden charges that may mean you actually end up paying more than you would on a standard car finance deal.