If you’re buying a used car, you may be considering what finance options are available. Here we’ll look at how used car finance deals work, so you can understand which may best fit your financial situation.

What is Used Car Finance?

Used car finance is a general term for the different finance agreements that enable you to buy a used car. It can include Hire Purchase (HP), Personal Contract Purchase (PCP), or a personal car loan.

How Does Used Car Finance Work?

Used car finance works like this:

• Choose your used car: You’ll usually go to a dealership to look at the used cars on offer.
• Decide on financing and pick your deal: Consider the right used car finance option for you, whether HP, PCP, or a personal loan.
• Pay a deposit: You may need to pay a deposit at the start of your finance contract.
• Make monthly payments: You’ll make regular payments during the length of the contract. Depending on the type of finance you choose, you’ll either own the car outright or have the chance to buy it.

Pros and cons of Used Car Finance

Advantages

• You can spread out the cost of your used car
• You may be able to afford a more expensive car than buying it outright
• Taking out a personal loan may help boost your credit score in the long run.

Disadvantages

• Some used car finance options – like PCP – enforce a mileage limit
• With both HP and PCP, you can lose your car if you don’t make the monthly payments.

Types of Used Car Finance

The main types of car finance are:

• Personal loan: When you borrow the money as a personal loan, you buy the car outright and pay the loan off in monthly instalments.
• Hire Purchase (HP): You’ll pay a deposit to a finance company and make monthly instalments throughout the term of the deal. The car is yours once you’ve made the final payment.
• Personal Contract Purchase (PCP): You pay an initial deposit and make monthly payments to a finance company. You’ll need to make what’s called a balloon payment at the end of the contract to own the car outright. An annual mileage allowance will also apply. If you don’t make the payment, you can walk away from the deal or use the equity you’ve built up in the car to get a new PCP deal on a different car.

How much does financing a used car cost?

The cost of used car finance depends on the type of finance you choose, the size of the deposit you put down, and the interest rate from the lender.

Our simple used car finance calculator helps you understand how each of these factors can affect your costs.

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

If you can buy a used car outright with cash, this is often the cheapest way. You’ll own the car outright from the start, won’t pay interest, and won’t need to make monthly payments.

When it comes to finance for used cars, you may consider a personal loan. You can likely spread the cost out over one to seven years and won’t necessarily have to put a deposit down. Depending on the lender, a personal loan may offer a lower interest rate than HP or PCP.

HP monthly payments are usually higher than PCP, but you own the car once you’ve made your final payment. Monthly payments on PCP might be lower, but you need to factor in the balloon payment at the end of the deal.

What’s the best used car financing option?

This depends on you and your personal circumstances. There are advantages and disadvantages of each.

Hire Purchase

Advantages:

• Own the car at the end of the contract
• Fixed monthly payments
• No excess mileage charges.

Disadvantages:

• Don’t own the car until you’ve made the final payment
• Higher monthly payments than PCP
• No option to sell or modify the car until the end of the contract.

PCP

Advantages: 

• Smaller monthly payments than HP
• Flexibility to buy the car or hand it back once the contract is up
• Often available on more expensive cars.

Disadvantages:

• Large balloon payment at the end of the contract to own the car outright
• Miss your payments and you could lose your car
• Excess mileage charges if you go over your agreed annual amount.

Car loan (personal loan for the purpose of purchasing a car)

Advantages:

• Own the car outright from the beginning
• Option to sell or modify your car during the loan term
• Car loans give the option to spread payments over a longer period of time to reduce monthly payments. This does increase the interest you pay, however.

Disadvantages:

• Depending on the terms of your loan, monthly payments can be more expensive than PCP
• A poor credit history can make it harder to get a car loan.

Can I get 0% finance on used cars?

You may be able to get a 0% finance deal on a used car. Some dealers or car finance providers direct may offer deals with 0% APR for either the full length or part of the contract. You’ll likely need a strong credit score to be offered 0% finance for a used car. You may also need to pay a larger deposit or make higher monthly payments.

Do I need a deposit for used car finance?

Most forms of used car finance do require a deposit, whether you choose HP or PCP. This is usually around 10% of the purchase price. You may be able to get a PCP deal with no deposit, but you will likely need to have an excellent credit score.

How Asda Can Help

At Asda Money, we can help you find the right car loan from our panel of trusted UK lenders. Simply check your eligibility for a personal loan for the purpose of purchasing a car without it affecting your credit score.

Our wide panel of UK lenders will provide offers based on your personal credit situation and tailored to your specific borrowing needs. You can choose to go on to make a full application with a lender or take time to consider your options.

We also offer a free and impartial Financial Support service. If no offers are available to you, we can help you understand your options.

Compare used car finance using our trusted panel of lenders today!

Used Car Finance FAQs

Is it good to get a used car on finance?

If you can’t afford the cost of a used car outright, financing your purchase may be a cost-effective option for you. However, you will need to carefully read the terms and conditions of the deal and make sure you can afford the deposit and monthly payments.  

What is the longest time to finance a used car?

PCP and HP finance deals typically last between three and five years. With a personal loan, you may be able to extend the loan up to seven years.