Can you buy a used car on finance?

In a recent survey, it was revealed that nearly a third of drivers in the UK are unclear about their finance options when buying a used car. In fact, the study by AA Cars (the AA’s used car website) shows that some drivers aren’t even aware that a secondhand car can be financed. 

To help clear things up, here at Octane Finance, we reveal that you CAN apply for finance to purchase a used car. In our article all about used car finance, we explain how car finance for used cars works, the best form of finance for used cars, and how you can apply for used car finance today in just three easy steps… 

What did AA Cars’ survey say about used car finance?

Results from the AA Cars survey all about used car finance shows that drivers in the UK have a lack of knowledge when it comes to their options. Here’s what the survey of 14,000 drivers showed:

• Over 80% of drivers acknowledged that employees at car dealerships were able to offer advice to help the process of applying for car finance.
• Only 61% of drivers knew that they could buy a used car with a personal loan (such as from a high street bank or building society).
• Only 49% of drivers were aware that a used car can be purchased through a Hire Purchase (HP) finance plan, and only 34% of drivers knew that a Personal Contract Purchase (PCP) finance plan can be used to buy a used car.     
• 44% of drivers suggested they would find it helpful if dealers went into more detail about the costs involved in purchasing a car through finance. 
• 31% of drivers said the car buying process would be made better if dealers explained the different types of car finance available to customers. 
• 22% of drivers think that the dealer should offer a discount when purchasing a car on finance through their dealership. 
• 18% of drivers said it should be mandatory for dealers to highlight what would happen if a customer’s circumstances changed, such as, if they were no longer able to make the monthly repayments. 

With news that a third of drivers are unaware or unclear about if and how a used car can be purchased on finance, there will be many motorists out there who are not fully informed about the choices they have. This is why we’re here to help!

How does car finance for used cars work? 

Despite the many misconceptions, used car finance works in exactly the same way as it would if you were planning to finance a brand new car. To get started, you need to ask yourself these three questions:

1. What is my budget? Work out the amount you can afford to pay per month.
2. What car do I want? Be realistic in your decision and think about what you’ll use the car for.
3. What is my current credit score? All too often overlooked, knowing what your current credit score is  will give you a better idea as to how likely a lender will approve you for used car finance. 

To help answer the questions above, read our article ‘What credit score is required for car finance?’ all about the topic, and take a look at the blog ‘What to do if you are refused car finance’ to familiarise yourself with the options if your credit score isn’t up to scratch.  

Once you’ve found the car for you, you’ll need to instruct a finance broker such as ourselves, to identify a suitable lender. At Octane Finance, you can be approved for used car finance in just three simple steps:

Step 1 - Get Approved

Fill out a finance application form so you can get the finance on a used car pre-approved.

Step 2 - Choose a Car

Of course you may already have decided on the model of used car, but if not, we can help you find a suitable vehicle.

Step 3 - Sign and Drive!

You don’t even have to visit us in person to sign the contract, simply confirm the finance agreement using our electronic signature system before arranging to pick up the car or having it delivered. It’s as easy as that.

What’s the best way to finance a used car?     

This is the part where drivers can get confused, as there are many forms of car finance available. However, when it comes to used car finance, there are really only two options you need to focus on. These are:

• Hire Purchase (also known as HP)

• Personal Contract Purchase (also known as PCP)

Below, we explain more about these options to help you decide when choosing the best form of finance to purchase your used car… 

Hire Purchase used car finance

Understanding Hire Purchase (HP) finance for used cars is much simpler when you break it down into three steps. Here’s what you need to know about HP used car finance:

Step 1: Deposit amount (also referred to as an ‘upfront payment’)

You’ll need to decide if and how much money you wish to pay upfront - this may be 10% of the car’s value, or three to six months worth of monthly repayment costs. What’s worth remembering is that the higher the deposit amount, the less you’ll pay in monthly fees. It may even be possible to secure a one-month upfront or zero deposit finance plan too.

Step 2: Monthly payments and contract period

The monthly payments are the amount of money you’ll pay back to the lender each month. Depending on the value of the car and any initial deposit contribution you make, the repayments will vary. The more or less you want to pay back each month will then determine the length of contract - this can vary from just 12 months, anywhere up to 60 months. 

Step 3: End of contract

When you reach the end of your finance agreement term, the car will be yours! Up until that point, the lender is the legal owner of the vehicle, so you’ll be restricted when it comes to making any modifications to the car. Remember, your car could be repossessed if you don’t keep up with the monthly repayments.

Personal Contract Purchase used car finance

Like with a Hire Purchase plan, Personal Contract Purchase (PCP) finance for used cars is much easier to understand when it’s broken down into three steps. Here’s what you need to know about PCP used car finance:

Step 1: Deposit amount 

Paying an initial deposit is the best way to ensure you pay back less to the lender each month. This is because the upfront payment you make is taken off the overall amount you owe back to the finance company. As such, the lender will usually recommend you pay a deposit of at least 10% of the overall cost of the car as an initial payment.

Step 2: Monthly payments and contract period

The amount you pay back to the lender each month is determined by any upfront payment you make, which will be taken off the total owed. However, you’ll need to bear in mind how much the car will depreciate during the contract term - with this in mind, you will be offered the chance to secure what’s called a Guaranteed Minimum Future Value (GMFV) against the car. 

Step 3: End of contract decisions

Unlike an HP finance deal where you’ll automatically become the legal owner of the car, the end of a PCP agreement works in three ways:

1. You can choose to own the car by paying a ‘balloon payment’ - this is the final payment amount and will depend on how much is still owed on the car.
2. You can hand the car back to the lender without any more to pay (unless you’ve exceeded the pre-agreed mileage allowance agreed at the beginning of the contract, or caused any damage to the car). 
3. You can part exchange the car and start a new contract on another vehicle (this option is only possible once you settle the final amount owed). 

For more details about Hire Purchase or Personal Contract Purchase car finance, and to understand the pros and cons of agreeing to an HP or PCP deal, read our useful blog ‘The best ways to finance a car’.

Used car finance solutions at Octane Finance

Get approved for used car finance the easy way by choosing Octane Finance to lend a helping hand. As a broker, we have many years of experience working with some of the best lenders in the UK. We work hard to secure preferential rates for our customers, so getting behind the wheel of a used car could prove quicker than you think.

We are proud to have a five-star ‘excellent’ rating on Trustpilot, having helped many thousands of drivers secure finance for a new or used car. Press the start button on your used car purchase by using the handy free finance calculator on our website to see how much you could pay per month on a range of PCP and HP deals.