Can You Finance a Used Car?
Read our guide to buying a used car on finance
Once you’ve found the perfect used car for your needs within budget, the next step is to figure out how to pay for it. With the average used car price at around £14,000 in the UK, saving up to buy a car in cash simply isn't possible for many buyers.
But fear not! Used car financing has become widely accessible and allows drivers to fund their purchases over manageable monthly installments. There are various options available, such as Personal Contract Purchase (PCP) and Hire Purchase (HP), so it’s important to understand which option works best for your situation.
In this comprehensive guide, we’ll walk through the most popular ways to finance a used car. Whether your priority is lower monthly payments, quicker ownership, or simply spreading the cost interest-free, read on to discover the finance solutions available at your fingertips…
Can you get finance for a used car?
Yes, it is absolutely possible to finance a used car purchase - in fact, financing a used car is a very popular option indeed. Many dealerships (like ourselves here at EMG Motor Group) offer used car financing solutions, working with lenders that specialise in providing loans for used cars.
Opting to finance a used car with a payment plan like Personal Contract Purchase (PCP) has many advantages. First and foremost, financing a used car means you can spread the cost of the vehicle over one to five years, so you can affordably budget fixed monthly payments rather than paying thousands of pounds upfront in one lump sum.
Choosing to finance a car also allows you to purchase a higher-quality vehicle as you aren’t limited by your current savings pot. Getting approved isn’t as hard as you may think and can start off with a soft credit check to get an initial idea of how much you may be eligible to borrow. With plenty of flexibility in terms of contract duration and down payments, used car financing makes owning a reliable pre-owned vehicle really achievable.
How does used car finance work?
When it comes to purchasing a used car, there are two main finance options available to you. The first is called Personal Contract Purchase - also known as PCP - and the second is called Hire Purchase - also known as HP. We explain more about these two popular car finance solutions, below:
Personal Contract Purchase (PCP) finance
PCP is a very popular way to finance a used car if you want to change the vehicle again in a few years. You will put down an initial deposit (usually around 10% of the vehicle’s worth), then make monthly payments over a period of two to three years.
It’s worth noting here that the payments you make tend to be lower than other finance options because you are actually paying for the depreciating value of the car, not the full price. At the end of the term, you then have three options to choose from:
- You can pay what’s known as the ‘balloon payment’ to own the car (this amount will likely be pre-agreed at the beginning of the term)
- You can trade the car in via a part-exchange scheme and use the remaining value as a deposit for another vehicle
- You can return the vehicle to the finance company in order to begin a brand new finance deal
Hire Purchase (HP) finance
Another popular choice among motorists, HP differs from PCP as there aren't as many options at the end of the contract. Instead, HP finance is designed for drivers who wish to own the vehicle at the end of the term, which is why monthly payments will be slightly higher.
Depending on your circumstances, you can pay for the car in installments from one to five years, however, you aren’t the legal owner of the car until you make the final ‘option to purchase’ payment. As with any kind of finance deal, failure to make repayments can lead to the car being repossessed by the lender.
When financing a used car, be sure to shop around for the best interest rates, read all the terms and conditions carefully, and only ever enter into an agreement if you can afford to make the pre-agreed repayments each month.
What is the best way to finance a used car?
The best way to finance a used car is very much dependable on your personal circumstances and current financial situation. If accessing a personal loan through your bank, building society, or a credit card isn’t an option, then car finance facilitated through a dealership like ourselves could be an ideal solution.
To help you on the journey, here are our five top tips for getting the best finance deal for a used car:
Tip 1 - Get Pre-approved for Finance
By getting a finance deal already secured, you can negotiate the purchase price of the car from a position of strength, knowing you will have the funds you need without worry.
Tip 2 - Search for Lower Interest Rates
The interest rate on your used car loan has a major impact on the total cost. Seek loan terms from three to five years for the most favourable interest rates and shop around for the lowest rate you can qualify for. Remember that an ‘excellent’ or ‘good’ credit score will unlock the best rates.
Tip 3 - Consider PCP Plans Carefully
Personal Contract Purchase (PCP) plans may seem more attractive due to the lower monthly payments, however, you don't own the car until you make a large balloon payment at the end to purchase it. Make sure this choice aligns with your budget and goals.
Tip 4 - Put Down a Deposit of at least 10%
If possible, it’s best to put down an initial deposit of at least 10% of the value of the car - while zero deposit deals may be available, this shows the lender that you are financially committed.
Tip 5 - Apply for a Short Term Loan
Short term loans of three years or less tend to have the lowest interest rates available but may have higher monthly payments, so it’s worth weighing up the options.
Following these top tips will hopefully help you secure affordable used car financing with reasonable interest rates and manageable monthly payments.
How easy is it to get approved for used car finance?
Getting approved for used car finance in the UK is generally straightforward if you have a decent credit score and meet some basic requirements. To give you a better idea, here are a few key things that lenders look for when approving applications from borrowers:
- An excellent or good credit score - A credit score classified as ‘good’ or ‘excellent’ will make getting approved for car finance much easier and qualify you for better interest rates.
- Income and employment status - Lenders want to see stable and regular income, as this shows you can afford the monthly payments. Ensure you can provide recent payslips and bank statements to support your application claims. Being employed full-time helps, especially if you have been at the same job for a number of years.
- Initial deposit amount of 10% or more - The more money you can put down as a deposit, the better. Most lenders want around 10% of the value of the vehicle.
- A loan term of between one to three years - Longer loan terms of four or five years are available but can come with higher interest costs. Opt for short terms between one to three years if possible for the most favourable rates.
- The condition of the car - The lender will require a vehicle history check and inspection before approving your application for used car finance. Cars over seven years old or over 100,000 miles may be tougher to finance.
Explore used car finance solutions at EMG Motor Group
Finding your perfect used car should also mean finding your perfect finance plan to match. That's why at EMG Motor Group, we're proud to offer competitive used car finance solutions to suit every budget.
We work with a range of lenders to secure exclusive offers just for EMG customers. Our experienced team can talk you through the process, right from how it works through to the application stage. So when you're ready, simply get in touch or come and visit us at one of our branches across East Anglia for a no-obligation conversation. We look forward to seeing you soon!