If you’ve decided to buy a used car but either can’t afford or would prefer not to pay for it using cash or savings, there are a few different options in terms of finance.
It can seem like a bit of a minefield and it’s difficult to know which one is right for you – have a look at our guide for some useful information.
Hire Purchase (HP)
This usually involves paying a deposit and then making equal monthly payments for the term of the finance agreement. The payments usually include interest although there can be 0% deals available if you’re looking at the right time.
Agreements can last up to 5 years however the longer the agreement the more you’ll pay in interest.
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Personal Contract Purchase (PCP)
This is a more flexible version of HP – there is still usually a deposit payment and the equal monthly payments (normally for 3 or 4 years). At the end of the agreement you can then choose to either hand the car back or pay a lump sum (or “balloon”) payment to own the car outright.
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Personal Loan
Using a bank loan might appeal more than dealer finance if you have a good credit history, as interest rates are usually lower.
With some online companies (think Money Saving Expert or Experian) you can compare loan rates and see if you’re likely to get approved without affecting your credit score.
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There are also guarantor loans and peer-to-peer lending, although these tend to be less common.
This information gives just a brief overview of used car finance options and It’s a good idea to explore all of your options when deciding how to finance a new vehicle – the dealers can have a vested interest in getting you to take their finance agreements (usually in the form of bonuses or commission) so it pays to make sure they’re giving you the best deal for you. They also use take the opportunity to sell you extras like GAP and other insurances, or extended warranties but these can often be better value through a third party, and without the hard sell!
