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Buying a used car on finance - what you need to know

There are a few ways you can finance your next car and spread the cost – find out which is right for you

A smiling family sit in a vehicle they secured through used car financing

Can you get finance on a used car?

You can get finance on a used car – and it’s a very popular way to purchase one.

It’s common to purchase used vehicles with car finance, and it’s definitely something to consider if you’d like to avoid paying the full amount in one go.

When you buy a car using finance, there’s a credit agreement between you and the lender that allows you to pay for the car over a period of time.

In most cases, you’ll just have to make a deposit on a car and pay the rest of the balance throughout the length of your finance contract.

How does financing a used car work?

Financing a used car is a simple and straightforward process – you’ll put a deposit down, borrow the remaining balance from the finance company, and repay the agreed amount in instalments over the duration of the contract.

At the end of your contract, you’ll get to keep your car or hand it back to swap for something new, depending on the type of finance you choose.

Types of used car finance

There are a few options when it comes to financing a used car, and all suit different circumstances. For buying a used car, there are three types of car finance that you’ll usually get to choose from.

Hire Purchase (HP) for used cars

You can use Hire Purchase to finance a used car if you know you definitely want to own the car at the end of your contract.

You’ll simply pay an initial deposit, and then spread the rest of the balance of your finance agreement across your monthly payments.

When your finance balance has been fully cleared, you'll be the legal owner of the car.

Personal Contract Purchase (PCP) for used cars

Personal Contract Purchase means you’ll get the option to keep your car or hand it back at the end of your contract.

You’ll put down an initial deposit and pay the rest of the balance across your monthly payments.

Unlike HP car finance, your initial deposit and monthly payments are equal to the estimated depreciation of the car, not the full value.

At the end of your contract, you can decide whether to hand your car back and pay nothing extra, or keep your car and pay the final ‘balloon payment’ that covers the rest of the value of the vehicle.

Not all used cars are eligible for PCP finance – it depends on the car’s age, mileage, and your contract length.

Personal Loan for used cars

Getting a personal loan for car finance means you’ll be spreading the cost of your vehicle across monthly payments.

Instead of putting down an initial deposit and repaying the car finance company, you’ll be borrowing the money from your bank and repaying it.

This means you’ll be the legal owner of your car as soon as you purchase it (and not when you’ve finished paying the finance), and can sell it on without paying back the full loan, as the loan amount is not usually secured against the car.

Is it a good idea to finance a used car?

Before you decide whether car finance is for you, you should consider your personal circumstances, your ability to afford extra payments throughout the length of your agreement, and how important that car you’ve got your eye on is to you.

Car finance allows you to spread the costs across a manageable payment period, and the different types of finance available give you options for owning the car at the end of the term or handing it back.

What is the best way to finance a used car?

The best way to finance a used car is by using the method that best suits your needs. This is why it's so important to do your research - it'll help you decide the best route.

PCP finance might be better if you're not fully committed to a car and would like the option to hand it back at the end of your contract.

HP car finance might be a better choice if you're set on keeping your car and don't want to deal with the balloon payment that comes at the end of PCP.

A personal loan can also be beneficial if you don't want to pay a deposit and would rather loan the money to purchase your car.

Consider all of the benefits and drawbacks of each finance method before you make the jump.

Learn more about car finance: