Once you’ve been accepted, the finance provider will release the money to purchase your car and you’ll be contractually obliged to pay back a set amount by the end of an agreed time period. If you have taken out a Hire Purchase (HP) plan or a bank loan, you will own the car once the debt is fully paid off.
If you have entered a Personal Contract Purchase or Personal Contract Hire leasing plan, you will not own the car at the end of the agreement. PCPs will give you the option to pay a larger final sum to own the car, and this is known as a final ‘balloon’ payment. You will not have this choice if you have leased the car on a PCH deal.
A wider range of deals tend to be offered on used cars that are being sold by dealerships. Professional sellers often have access to more complex and exclusive finance deals, but it’s important to remember that referrals tend to be on a commission basis, so a dealership’s plan might not offer the very best value.
If you’re buying a used car privately, you can still pay through a finance plan. However, you will need to find and arrange this yourself, and your options may be more restricted. Regardless of where you’re buying a car from, though, it always pays to shop around for the best finance deal.
Types of used car finance
There are a number of different used car finance plans to choose from, each with their own pros and cons. Understanding which one is best for your financial situation could potentially save you thousands of pounds.
Personal Contract Purchase (PCP)
Personal Contract Purchase (PCP) finance is common when it comes to new car buying, but many dealers and finance companies offer this type of finance for used cars as well. It’s probably the most complicated of the types of used car finance, but it’s still not too hard to understand.
You make a deposit on the car to start with, and this is usually around 10 per cent of the car’s value (although the amount is flexible). After you’ve paid this deposit, you’ll then make a series of monthly payments, usually for three or four years. At the end of the PCP agreement you’ll be faced with an optional ‘balloon’ payment that will allow you to own the car outright. If you choose not to pay, you can hand the car back and then part ways with the finance provider.