Financing a used car can make getting behind the wheel more affordable for many of us. With finance, you can pay for your car over time instead of in one big chunk, making it easier to manage within your monthly budget.
If you’re buying from a dealership, you’ll often have access to different finance types like personal contract purchase (PCP) or hire purchase (HP). Buying from a private seller? A personal loan might be your best bet, as it can be used almost anywhere.
Financing a used car can make buying the car you need much more manageable. Here’s how the process works:
Start with a deposit
Depending on the finance option you choose, you may or may not need a deposit. With HP, a deposit – usually around 10% of the car’s value – is often required as an upfront payment to get things started, which can help to reduce your monthly payments.
Other options, like an unsecured car loan with Oodle, allow you to finance the entire amount upfront, deposit-free.
Borrow the rest
Once you’ve covered any initial deposit, you’ll borrow the remaining amount from the finance provider to cover the car’s full cost. The loan provider will work with you to find a repayment plan that suits your budget.
With Oodle, you can choose from flexible finance options, which gives you the freedom to spread the cost over time in a way that makes sense for you.
Make monthly payments
Your repayments are split into regular monthly instalments, which can help you manage your budget without stretching it too thin. For example, an HP agreement will have set monthly payments comprising the amount you’ve borrowed, plus interest and fees. Once the term ends and you’ve paid everything due, the car is yours.
Personal contract purchase means lower monthly payments, and you’ll have the option to buy the car or return it at the end. With an unsecured car loan, you borrow the full amount of the car and buy it upfront. This option keeps things simple, as you’ll own the car from the get-go and simply repay the loan amount over a pre-agreed timeframe. However, you’ll likely need a very good credit rating to qualify for a personal loan, and interest rates may be higher than other forms of car finance.
Decide on ownership at the end
At the end of the finance term, your options depend on the type of finance you chose. If you’re using HP, the car becomes yours once you’ve made the final payment and paid the option-to-purchase fee. With PCP, you’ll have a few choices: return the car, trade it in, or pay a final amount to keep it.
If you’ve borrowed a car loan, you already own the car, so there are no decisions to make at the end.
There are a few different routes you can take when you want to finance a used car, and they each have their own perks. Let’s explore them.
Personal loan for used cars
With a personal loan, you’re borrowing a set amount to cover the car’s price – no deposit needed. The main benefit? You own the car outright from day one.
Sometimes known as an unsecured loan or car loan, this option is ideal if you want that extra flexibility. If you decide to sell the car in the future, you don’t have to worry about settling the finance first since the loan isn’t tied directly to the car.
The downside? Interest rates can sometimes be a bit higher compared to other types of finance, so it’s worth comparing to see what’s most affordable.
PCP for used cars
Personal contract purchase is great if you’re looking for lower monthly payments and like the idea of extra flexibility at the end of the term. You’ll usually put down a deposit, and then make payments that mostly cover the car’s depreciation – the part of its value that drops over time. That’s why the monthly payments are generally lower.
When your contract wraps up, you’ll have a few choices. You can:
hand the car back
make a final balloon payment to keep it
use any remaining value to part-exchange for a new car.
PCP is perfect if you want the option to switch cars every few years. Just keep in mind that not all used cars will be available on PCP, especially if they’re older or have high mileage.
HP for used cars
Hire purchase is pretty straightforward. You’ll pay a deposit upfront, then make monthly payments on the rest of the car’s value. Once the last payment’s done, and you’ve made the final option-to-purchase fee, the car is fully yours. HP is ideal for you if you’re keen on owning the car outright and don’t want a big balloon payment at the end like you would with PCP.
Since you’re essentially ‘hiring’ the car until the loan is fully paid off, it’s owned by the finance company until you’ve made all your payments. But once you’re done, it’s yours to keep.
Every option offers something a bit different. At Oodle, we’re here to help you find the one that makes the most sense for you and your budget.
The answer to this varies from person to person, so it’s important to look at the bigger picture and weigh up what’s right for you.
First off, think about your financial situation.
Can you comfortably handle the extra monthly payments? Taking a look at your income, outgoings and overall budget will give you a good idea of what you can afford without stretching things too thin.
Your credit score is also an important point, as it can impact the interest rates you’re offered.
A stronger score usually means better rates, so it’s worth checking where you stand. Don’t forget to factor in the total cost of financing beyond just monthly payments – look at the interest rates, fees, and any other charges that could affect what you’ll pay over time.
Next, ask yourself how important the car is in your day-to-day life.
Do you rely on it for work, family, or other essential activities? If the answer is yes, financing might be a smart move to help you get reliable transport without needing a large lump sum upfront.
Lastly, think about what you want out of the car.
Is it something you plan to keep long-term, or do you like the idea of changing cars every few years? As we’ve seen, finance options like PCP are favoured for their flexibility, while a personal loan or HP could be a better fit if ownership is your ultimate goal.
Financing a used car could be just the ticket to getting you behind the wheel without breaking the bank. With a variety of options to suit different circumstances and preferences, there’s bound to be a plan that fits just right.
If you’re ready to explore your options, we’re here to help. Get a car finance quote (representative APR 16.9%) today and take the first step towards driving your next car with confidence and flexibility.
