GUIDE TO USED CAR FINANCE
If you’re in the market for a used car, you will have very different objectives and expectations to someone buying a new car. As a result you shouldn’t fall into the trap of assuming the buying process is the same – it’s actually very different. In particular, used car finance has many different pros and cons to regular car finance as this guide to used car finance will explain.
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HOW SHOULD YOU PREPARE FOR BUYING A USED CAR?
Before you even contemplate used car finance you should make sure you’ve done research on the car you wish to buy. Run a vehicle history report, take the car for a test drive and ideally have it checked over by a mechanic wherever possible.
Also, remember to scan around online for the best used car prices, taking advantage of the many online directories, such as SaveMoneyOnCars.co.uk, which offer used car deals. Make sure you compare prices with like-for-like models to ensure you’re getting a fair price with the vehicle’s depreciation taken into account.
WHAT METHODS OF USED CAR FINANCE ARE THERE?
Broadly speaking, used car finance is restricted to used car leasing, used car hire purchase and used car loans. Some leasing companies might be willing to offer personal contract purchase deals on used cars, with which you can buy the used car at the end of the lease term, but this is not widely available.
Used car hire purchase works in broadly the same manner as hire purchase of a new car in that you pay a deposit and then pay the balance in monthly instalments over an agreed period at which point the car becomes yours. Alternatively, you could opt for lower monthly payments and a balloon payment at the end of the term. Remember the used car will not become yours until all of the repayments are made and it could be repossessed at any time.
By contrast, used car loans and used car leasing are largely different as the following sections explain.
USED CAR LOANS AND USED CAR FINANCING
Used cars are arguably better suited to loans than new cars because you are borrowing lower amounts – meaning you should be able to take out an unsecured loan rather than a secured loan that would put your property (or other collateral) at risk.
The first step when researching a used car loan is to know about your own circumstances. Research your credit profile using a credit reference agency such as Experian or Equifax. If you have ‘good’ credit you should be able to secure some of the cheaper loan rates on the market. If you have fair or bad credit, do what you can to build your credit rating before you buy – read our Bad Credit Guide for more tips.
From there, shop around for the leading loan rates. Don’t assume that your bank will offer you the best deal – that is rarely the case. If you are buying from a used car dealer remember that their objective is to sell the car, not to necessarily secure you the best interest rate on your loan. Consequently it is a good idea to shop around for loans, particularly online where you can often find discount rates.
You might wish to make a deposit on your car to reduce the amount you have to borrow. If you choose to do this, avoid paying cash as if the deal goes wrong you might never get your money back. Instead, look to pay using a credit card – there are a host of credit cards offering lengthy 0% deals on balance transfers and purchases.
USED CAR LEASING AND USED CAR FINANCING
The key to used car leasing is to think about whether it really offers value for money… or if you could secure a new car for a similar rate.
In theory, used car leasing should be less expensive than new car leasing because most of the vehicle’s depreciation has already taken place. Additionally, most used car leases will be taken out over a short period of time meaning you will not pay out as much over the long term.
However, due to many dealers negotiating special deals with manufacturers for new cars, including factory rebates, new cars can often be more cost effective – and you have the advantage of driving around in what in theory should be a better car. A good tip is to use a website such as contracthireandleasing.com to compare the rates on both new and used car leases.
When taking out a used car lease you should be very thorough before you agree to the deal. Be sure to research the vehicle to determine a fair price, and inspect it methodically. Watch the mileage closely as this will indicate how much the car’s value has depreciated. An average vehicle with regular wear and tear usually clocks around 15,000 miles for each year.
When it comes to financing the car, you have two options. You can either accept the deal from the lease company used by the dealer, or alternatively you can arrange your own leasing deal – this is always necessary if you are buying from a private seller. With this alternative you simply find the car you want, negotiate the best price and then find the leasing company that offers you the best rate.
Don’t forget to check the contract thoroughly before you sign!
WHERE TO GO FOR THE BEST USED CAR FINANCE DEALS
Whether you are looking for used car hire purchase, used car loans or used car leasing, the key is to thoroughly research all of your options before you buy. Once you have found the car you want, shop around online for the best deals.
Rather than go from dealer to dealer or broker to broker, make the most of online directories such as CarSupermarkets.co.uk (for the best prices on used cars) and ContractHireAndLeasing.com (which includes leasing options for used cars). By searching thousands of deals on one website you can save time and money.
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