Finance options for used cars vary to those that are available for a new car. In essence, financing a used car should work out as better value for money than a new model, as most of the vehicle’s depreciation has already taken place. Recent findings from uSwitch.com revealed that throughout 2007 UK motorists spent £11.6 billion on the ten best-selling cars which lost, on average, 43% of their total value within the first year. Opting for a used car can therefore save you money in the long term, especially if you shop around for the best value finance package to go along with your new wheels.
Generally speaking, used car finance takes the form of either hire purchase, personal contract plan (PCP) or a used car loan. So how do you decide which one to opt for?
Hire purchase is the traditional means of car purchase and remains a popular choice. Hire purchase enables you to spread the purchase cost by paying the balance in monthly installments over an agreed period. The deposit amount tends to be low, from around 10% of the overall purchase price, so you don’t need to have a fortune in the bank to choose this option. Compared to other payment alternatives the amount of interest payable is typically lower and can often be negotiated so try a spot of bartering when the times comes.
PCP’s are another common method of car finance used by most dealerships. You pay a deposit for your car of choice followed by monthly installments over a specified time period. At the end of the payment plan you have a few options which include simply handing the car back to the dealership or making a final ‘balloon’ payment and taking full ownership.
PCP monthly repayments tend to be lower than hire purchase but remember this is because of the optional final payment being factored in. Always remember that PCP and hire purchase agreements are secured on your car so it may be repossessed if you fail to meet the monthly repayments.
Finally, a used car loan is another possible payment method which tends to be fairly easy to organise and can offer very competitive rates. Offered by most banks, one benefit is that the loan is not secured on your car so it cannot be repossessed. You can also sell it whenever you wish without having to repay the loan, an option not possible with hire purchase or PCP’s.
A key point to remember before arranging your used car finance is that you must make sure you have comprehensively researched the car you have your eye on. Run a report on the vehicles history, check you can afford to pay the insurance premium and take the car for a test drive to ensure all is as it should be. After this all you will have to think about is where to go on your first road trip!
