Financing a Second-Hand Car: 4 Options

But what options are there for financing a second-hand car? We break down how My Car Credit can help you to get behind the steering wheel of a nearly new or used vehicle below.

How to finance a used car

Used car finance is a catch-all term for car finance agreements that allow you to borrow money against a used or nearly new vehicle.

Remember to always do your research before purchasing a new or nearly new vehicle. You want to make sure that you’re in the know about everything from the vehicle’s condition through to its remaining warranty (if relevant), and its service history.

There are different kinds of car finance agreements that you can choose for your used car. The right deal for you will depend on your unique needs and circumstances.

It’s worth comparing the different kinds of used car finance available, so that you can make an informed decision and choose the right agreement for you. That way, you’re not forking out for anything you don’t need.

Financing a second-hand car – 4 options

Hire Purchase (HP)

HP used car finance is our most popular agreement. With HP, you can pay an initial deposit, followed by a series of monthly instalments. This initial deposit isn’t always necessary, but paying it means you’ll have lower monthly payments.

Your monthly outgoings are fixed, giving you greater budgetary control. You won’t face a final balloon payment, and will own the vehicle at the agreement’s end. Plus, you also won’t face mileage limits, or fines for excessive wear and tear.

HP used car finance is best for those looking to own their vehicle at the end of the agreement, and who’d benefit from no usage limitations. You will be expected to make higher monthly payments compared to other finance agreements.

Personal Contract Purchase (PCP)

With PCP, you’ll pay a deposit and regular monthly payments against your used or nearly new vehicle. These monthly payments are lower compared to other agreements (like HP) because you’ll pay a final lump sum (balloon payment) at the end of the agreement. This allows you to completely own the car. Alternatively, you don’t have to make the balloon payment and can hand the car back providing the car is in good condition and within the contracted annual mileage.

Personal Contract Hire (PCH)

PCH car finance can also be referred to as a lease agreement. Essentially, you’re renting the vehicle for a long-term period of time, before handing it back to the dealership. You’ll pay an initial deposit and can also benefit from features like breakdown and road tax coverage.

PCH used car finance is only suitable for those with good or excellent credit scores, who aren’t looking to own the car at the end of the agreement. You’ll also face charges if you exceed mileage limits or cause excessive damage.

Personal Loan

With a personal loan, you’ll borrow the full amount of the used or nearly new vehicle, paying this off via monthly repayments. Essentially, you’re buying the car outright, and you own it from the beginning of the agreement. This means that you can always choose to sell it any time after purchasing it.

A personal loan is the simplest financing option for a second-hand car, but is only suitable for those with a good credit score.

Is financing a second-hand car right for me?

There are many benefits to financing a second-hand car. You’re spreading the cost of what can be a very expensive purchase, potentially affording a nearly new vehicle that would be beyond your budget if you were buying outright. Plus, by making your monthly repayments according to schedule, you’ll improve your overall credit rating.

As with any finance agreement, if you fail to make your repayments, you’re at risk of losing the vehicle and negatively impacting your credit score.

Find out more about financing a second-hand car

Check out our post to find out more about your used car finance options. We also have a car finance calculator to help you do the maths on your next vehicle purchase.