8 Important Secondhand Car Finance Essentials

In the bustling world of secondhand car purchases, 2023 is set to be a standout year with Brits poised to borrow an impressive £23 billion.

But while the allure of a shiny set of wheels beckons, it’s essential to navigate the secondhand car finance landscape with caution.

From understanding the various finance options at your fingertips to the crucial role of credit checks and the importance of managing monthly payments, you need to be clear on all aspects to ensure you have a smooth ride.

Key Points

  • UK’s Secondhand Car Finance Surge: A whopping £23 billion is set to be borrowed in 2023, marking a dramatic increase from the nearly £9 billion in 2013.
  • Monthly Costs vs. Debt: Ensuring you can meet monthly payments and avoid debt is essential when considering secondhand car finance options.
  • Finance Types for Used Cars: PCP, HP, personal loans, leasing, and balloon payments offer flexibility and affordability for secondhand vehicles.
  • Credit Checks are Crucial: Lenders will assess your credit history when you apply for car finance, influencing your offered rates and terms.
  • Know Before You Borrow: Regularly review your financial situation, consider the length of your loan, and always check your credit report before applying.

What is Car Finance?

Car finance, in essence, allows individuals to spread the cost of a vehicle over time rather than paying the full amount upfront. It involves borrowing a sum of money to purchase the car and then repaying this amount, with interest, over a defined period.

What Secondhand Car Finance Options are Available?

A car wheel and tyre on a secondhand car

When it comes to purchasing secondhand or used cars, not every finance option that’s available for new cars is necessarily applicable.

However, there are still plenty of avenues available to ensure that a prospective car owner can spread the cost of their vehicle over time.

Here’s a look at the common car finance options for secondhand cars in the UK.

  1. Personal Contract Purchase (PCP) for Used Cars: Just like its new car counterpart, PCP for used cars involves an initial deposit, monthly payments, and an optional final balloon payment if you wish to keep the vehicle at the end of the term. This option allows flexibility at the end of the agreement.
  2. Hire Purchase (HP): This remains one of the most straightforward and popular ways to finance secondhand cars. After paying an initial deposit, the remainder of the car’s value is spread over a series of monthly payments. Once the last payment is made, the car is yours. It’s worth noting that the car remains the property of the finance company until the loan is fully repaid.
  3. Personal Loan: If you’ve secured a personal loan from a bank or another financial institution, you can use it to buy a secondhand car. You’ll then pay back the loan in monthly instalments over an agreed term. Since the car is paid for upfront with the loan, you own it outright from day one.
  4. Leasing Used Cars: While less common than leasing new vehicles, some providers do offer leasing options for used cars. This allows you to rent the car for a fixed period, and at the end, you can either return it or, in some cases, purchase it.
  5. Balloon Payments for Used Cars: This is similar to PCP but generally offers lower monthly instalments, offset by a larger final payment if you choose to keep the car. Some secondhand car finance packages might offer this to make monthly costs more affordable.

Factors That Impact Secondhand Car Finance

  • Age of the Car: Some finance companies have age restrictions on used car financing, typically not financing cars over a certain age.
  • Deposit Amount: Generally, a larger deposit means smaller monthly payments, but it also means more money upfront.
  • Interest Rates: These can be higher for used cars compared to new ones, so it’s essential to shop around for the best deal.
  • Car History: It’s crucial to check the car’s history when considering secondhand car finance. Ensure it doesn’t have any outstanding finance or serious issues that might affect its value or performance.

A Look at the Current Secondhand Car Finance Market

The allure of owning a car without emptying one’s bank account has never been more enticing.

Recent research unveils a telling trend in the secondhand car finance landscape, pointing towards a decisive shift in consumer behaviour and preferences.

In the early months of 2023, some 388,309 secondhand cars changed hands, backed by finance, up from 379,512 the previous year.

Looking back a decade, in 2013, the loans secured for secondhand car finance were nearly £9 billion.

Fast forward ten years, and Britons are on track to borrow a jaw-dropping £23 billion for their secondhand car dreams in 2023. This marks an impressive 164% upsurge from 2013.

Interestingly, the average amount borrowed per vehicle is slightly dropping, transitioning from £15,744 in 2022’s first quarter to £14,913 during the same period this year.

As Mark Attwell, a respected figure and Director at AA Car Finance, commented “A decline in the average finance amount per car probably stems from more rigorous lending standards and stringent checks on affordability.”

He added “Consequently, many motorists might have to dig deeper into their pockets for an upfront deposit this year to secure a comparable finance deal.”

Yet, in the face of rising interest rates, hope is far from lost for potential car owners. Attwell suggests that value-for-money finance deals are still within reach. His advice? “Make sure you shop around online before sealing the deal on any package.”

8 Essentials Before Securing Secondhand Car Finance

car inside black leather steering wheel

When you apply for car finance, whether for a brand-new vehicle or a secondhand car, lenders will almost always perform a credit check. This process helps them evaluate the risk associated with lending money to you.

  • Assessing Reliability: Your credit history provides a record of how you’ve managed previous credit agreements, including whether you paid them on time and in full. It gives lenders a snapshot of your reliability as a borrower.
  • Determining Loan Terms: Based on your credit history, lenders might offer different interest rates or terms. Those with excellent credit might receive more favourable terms, while those with lower scores might face higher interest rates or even denial of credit.

Let’s now delve into what you should consider around your credit check and score as you look to secure secondhand car finance:

  1. Check Your Credit Report:
    • Before applying, obtain a copy of your credit report from major credit agencies. In the UK, these include Experian, Equifax, and TransUnion.
    • Ensure there are no inaccuracies or discrepancies. If you find any, rectify them with the respective agency.
  2. Understand Your Credit Score:
    • Your score will range from poor to excellent. Recognise where you stand and how lenders might view your application.
  3. Avoid Multiple Applications:
    • Every time a lender performs a hard credit check, it can leave a ‘hard enquiry’ on your report. Multiple inquiries in a short time can negatively impact your score and signal to lenders that you might be a high-risk borrower.
  4. Improve Your Credit Health:
    • If you’re planning to take out car finance in the future, consider steps to boost your credit score:
      • Pay bills on time.
      • Keep credit card balances low.
      • Avoid taking on unnecessary debt.
      • Don’t close old accounts unnecessarily, as a longer credit history can be beneficial.
  5. Consider a Guarantor or Joint Application:
    • If you’re concerned about your credit history, some lenders allow a guarantor loan or a joint application. This means another person co-signs the loan, essentially vouching for your ability to repay. However, this comes with its own risks, as the guarantor will be responsible for repayments if you default.
  6. Be Prepared for Different Outcomes:
    • Depending on your credit health, lenders might:
      • Offer the requested loan amount but at a higher interest rate.
      • Propose a smaller loan amount.
      • Request a larger deposit or down payment.
      • Deny the application.
  7. Consider Alternative Lenders:
    • Some lenders specialise in offering finance to those with poor or limited credit histories. However, these might come with higher interest rates due to the perceived increased risk.
  8. Stay Honest:
    • Always provide accurate information when applying. Falsifying details can lead to serious repercussions and further harm your credit health.

10 Key Pointers to Handling Secondhand Car Finance Responsibly

Opening a car door

The allure of driving away in your own vehicle, even more so when it’s facilitated by an accessible finance option, can be genuinely tempting.

However, it’s essential to approach secondhand car finance with a clear understanding of your financial situation to avoid future monetary complications or debt traps.

Here are key pointers to ensure you handle your secondhand car finance judiciously:

  1. Understand Your Monthly Budget
    • Before committing to any finance agreement, break down your monthly income and expenditure.
    • Only consider taking on additional monthly payments if you’re confident you can handle them without straining your finances.
  2. Factor in Additional Costs
    • Owning a car isn’t just about the monthly finance payments.
    • Remember to account for insurance, tax, fuel, maintenance, and potential repairs. Ensure these costs comfortably fit within your monthly budget.
  3. Read the Fine Print
    • Always understand the terms and conditions of your finance agreement.
    • Be clear on interest rates, the total amount payable, any charges for late payments, and potential penalties for breaking the agreement.
  4. Avoid Overstretching
    • It might be tempting to opt for a pricier model or add extra features, but it’s essential to be realistic.
    • Choose a car that meets your needs and fits comfortably within your budget.
  5. Consider the Length of the Loan
    • Longer loans might offer smaller monthly payments, but they often result in paying more in total interest.
    • Analyse if a shorter loan duration, though with slightly higher monthly payments, might be more economical in the long run.
  6. Maintain an Emergency Fund
    • Life is unpredictable.
    • Having savings set aside can help cover car finance payments during unforeseen financial difficulties, ensuring you don’t fall behind and incur extra charges.
  7. Monitor Interest Rates
    • Secondhand car finance can sometimes come with higher interest rates than those for new cars.
    • Always shop around, and don’t be afraid to negotiate or look for better deals.
  8. Seek Professional Advice if Unsure
    • If you’re uncertain about any aspect of the finance agreement or your ability to repay, consult with a financial advisor to help provide tailored advice based on your financial situation.
  9. Review Your Financial Situation Regularly
    • If your financial situation changes, review your commitments.
    • If you face difficulties, speak with your finance provider as soon as possible. They might offer solutions, such as payment holidays or restructuring the loan.
  10. Avoid Multiple Loans
    • Taking on multiple financial commitments simultaneously can strain your finances.
    • It’s advisable to clear existing debts before taking on new ones.


As the secondhand car market accelerates in 2023, equipping yourself with knowledge is the best way to ensure a smooth ride.

Whether you’re eyeing a sleek sports car, family car or a rugged SUV, understanding your finance options, recognising the importance of credit checks, and pledging to borrow responsibly will make the journey more enjoyable.

Always do your own thorough research and consider seeking advice from financial professionals or institutions before making a decision.

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