A brand new car can be pretty expensive. While getting it on finance can help spread the cost, if you’re looking to get on the road for less, a used or second hand car could be a good option. No matter what sort of vehicle you opt for though, there are a lot of things to consider, from the type of finance arrangement to the age and mileage of the car.
What is Used Car Finance?
When it comes to buying a used car, covering the cost in full isn’t always an option. So you can instead make monthly payments through car finance. There are two main types of car finance - Hire Purchase (HP) and Personal Contract Purchase (PCP).
For second hand cars, the most popular method of car loan is HP. You essentially split the cost of the vehicle into smaller monthly payments, with interest. The duration of a hire purchase is typically over a few years. Once the final payment has been made, you’ll own the car outright.
With a personal contract purchase, instead of paying off the total value of the vehicle, you’re instead paying for the depreciation. This is the difference between what the car was worth at the time of purchase and what it will be worth at the end of your contract. If you want to then buy the vehicle when your agreement ends, you would make a balloon payment.
Can I Get Car Finance on a Used Car?
The simple answer is yes you can, although this will be based on your individual circumstances. Approximately 1.5 million cars are purchased on finance in the UK each year, and these make up over half of all cars bought on finance. Car finance can be a great way of spreading the expense of a vehicle, as it allows you to make affordable monthly payments rather than pay as a lump sum.
Car finance could also save you money in the long run! The cost of maintaining an older car that constantly needs fixing up will often exceed the price of a newer car purchased on finance. Not to mention the fact that with car finance, you can get a more economical and environmentally friendly vehicle, which has lower emission rates and better fuel efficiency.
Second Hand Car Finance Eligibility
While there is no such thing as guaranteed used car finance, many lenders will consider your application even if you have a low credit score. Most second hand car finance lenders ask that you meet the below criteria:
- Be earning at least £1,000 a month
- Have a full or provisional driving license
- Be a UK resident aged 21 or above
And if you’re looking for self employed used car finance, there are ways in which you can demonstrate you earn enough to make the repayments. Even if you can’t show a payslip, you can instead provide bank statements. Used car finance for self employed individuals is becoming more common, and there are specialist lenders that will consider your loan application even if you are self employed.
What is the Best Way to Finance a Used Car?
The best finance option will depend entirely on your individual situation! If you’re looking for cheaper monthly repayments, PCP is the way to go, though you would have to make a balloon payment at the end of the term if you wish to own the car. If you want to spread the cost more evenly, you should probably opt for hire purchase.
When it comes to vehicle finance options, this could also include a personal loan. With a personal loan, you would own the vehicle from the start - you’d then make monthly payments to the lender to cover the cost of the loan. The benefit of hire purchase is that, although you don’t own the car until the end of the agreement, it’s a secured loan. This means that the interest rates are often lower, and you’re more likely to be accepted for a HP deal than a personal loan if you have bad credit.
How Much Does Used Car Finance Cost?
As with the best way to finance a used car, there is no definitive answer to this question. Things like the initial value of the vehicle, the length of the borrowing term and your credit history will all play a part in determining how much financing a car will cost.
Thankfully, there are plenty of handy car finance calculators you can use, to help you work out roughly how much your monthly instalments would be! Simply enter the amount you’re looking to borrow, your repayment term, and the bracket your credit score falls into. If you’re unsure of your credit rating, you can check this for free via sites like Credit Karma and Experian.
Things to Keep in Mind When Buying a Used Car
Before buying any vehicle, whether it’s new or used, it’s important to do some research. Used cars do come with more considerations though, as you’ll need to look at things like the condition of the vehicle, as well as the age and mileage. Some lenders may not finance a car that’s done too many miles or is too old.
It’s also sensible to take your time when searching for a second hand vehicle. Rushing into it may result in you ending up with a vehicle you’re not completely happy with. So look at a number of options before you pick out your next car.
Another thing to bear in mind when buying a used car is how much you can realistically afford to pay each month, and not just for the car finance itself. Take into account the running costs of the vehicle, such as insurance, road tax and petrol, and work out how much you can afford.
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