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Used car finance

Guide to financing a used car

Financing a used car can feel overwhelming. There are lots of option - but which one is most suitable for you? Our guide explains all you need to know

By Tim Heming

Published: 25 August 2021

Man driving

Compare with our partner MOTIV

Can you finance a used car?

When you can’t pay in cash for your new wheels, you’re likely to turn to a finance deal. Millions of motorists use car finance to purchase used cars every year. 

There are several types of car finance available. Each option will come with its advantages and things to watch out for. The right car finance option for you will likely depend on many factors including the car, where it’s sold, whether you are keen to own the car at the end of the finance deal, and your financial situation. 

The three most common car finance options are: 

An alternative to taking out a loan is using a credit card to fund your new wheels (if the cost of the car is within your credit limit and your chosen dealership accepts card payments – many do not). Using your credit card and keeping up with repayments could boost your credit score, but unless you can find a long-term interest-free credit card, you could face high interest charges. 

 

What is the best way to finance a used car? 

There are several factors to consider when working out the most suitable type of car finance for your needs. Whilst PCP finance offers the lower monthly cost (typically more than 25% less than other options), there are a range of other pros and cons to think about. If you have a less than perfect credit history, some types of car finance may be more accessible than others.

The following tables compare the key features of different types of car finance and the impact of your credit score: 

 

 
Personal Loan 

 

Hire Purchase 

 Personal Contract     Purchase

Will it offer monthly payments?

No

No

Yes

Will I own the car from the start of the deal?

Yes

No No

Can I pay an up-front deposit?

Yes

Yes

Yes

Are my monthly payments fixed?

Yes

Yes

Yes
Can the car be taken away if I fall behind on repayments? No Yes Yes
Can I buy the car from a car dealership? Yes Yes Yes
Can I buy the car from a private seller? No Yes Yes
Will I own the car at the end of the deal? Yes Yes Only if the balloon payment is made
Is there an option to return the car at the end of the deal? No No Yes
Are there any annual mileage restrictions? No No Yes
Can I modify the car during the deal? Yes No No

 

 

Credit Rating                

Which finance type is likely to offer the best rate? 

 

Excellent

Personal Loan

Very Good

Hire purchase or personal contract purchase

Good

Hire purchase or personal contract purchase

Fair

Hire Purchase

Poor Hire Purchase

*Source: Motiv

 

How does financing a used car work?

The process for buying a used car with finance will depend on the type of finance you are looking to takeout.

If you take out a personal loan, you will receive the money into your bank account to then buy any car you wish, including those for sale by a private seller. You will own the car outright from the start and there is no risk of it being taken away if you struggle to keep up with repayments. This is because personal loans are unsecured – meaning your car is not used as collateral so the loan company can’t seize it if you can’t pay your debt.

Hire purchase and personal contract purchase (PCP) are both types of secured car finance. The finance company will pay the dealership directly for the car. You will be the registered keeper of the vehicle and will be free to use it, but you won’t own the car until all your repayments are made. Also, as the car is owned by the finance company there is a risk of repossession if you don’t keep up with repayments. 

 

How to get the best used car finance deals?

Once you’ve decided which type of car finance is suitable for you, there are still things you can do to get the best deal.

  • Ensure the finance meets your needs – depending on the car you’re buying, how many miles you’ll drive and your personal circumstances it is likely one type of finance will emerge as being better for your needs than others

  • Check your credit file – the interest rate or APR you end up paying is often linked to your credit score. For this reason you’ll want to ensure your credit score is as good as it can be and free from errors. Your credit score can affect all types of car finance, but it will matter most if you’re looking to take out a personal loan. The good news is there are lots of ways you can boost your credit score

  • Shop around – check your options to be sure you’re getting the best deal before you sign up to any finance agreement. This is especially important when you’re taking finance from a car dealership. Look at other offers available from standalone car finance providers as often there will be better finance deals available online.

 
Can you get 0% financing on a used car?
 
Typically you’re more likely to find 0% finance deals available for new cars. They tend to be rare for used cars. That said, you may be able to get 0% car finance at a dealership on a used car, so it could be worth shopping around.
 
 
Can I get used car finance with bad credit? 
 

Used car finance is still an option for those who’ve struggled with credit in the past.  Hire purchase may be the best option for someone with bad credit. This is because the finance is secured against the car so there are typically more options available than with a personal loan, which is unsecured. 

However, if you do have a low credit score you’re likely to have less choice of finance deal and a higher interest rate, so be sure you’re comfortable you can meet the repayments. 

 

Compare used car finance deals with MoneySuperMarket

 

You can compare car finance deals with our partner Motiv. It’s an online service that allows you to see if you’re eligible for HP and PCP deals and the rates you’ll pay. 

It only takes a few minutes to enter your details and compare offers, it is free and searching for a deal won’t harm your credit score.