December 03, 2018 at 4:07 PM
Spreading the cost of a used car across monthly payments by taking out a finance agreement can help many people to afford a newer car with greater safety and technology features.
Used car finance agreements from a dealership are available between 24 and 60 months depending on which product you go for.
Alternatively, a personal loan can allow you to spread payments across seven years in some circumstances. You could even pay for the car using a credit card and make regular payments on that so you're not restricted by a time limit.
PCP (PERSONAL CONTRACT PURCHASE)
A PCP finance agreement can be taken out through the car dealership you're 'buying' the car from. It's important to note that you won't actually own the car unless you pay the balloon payment at the end (more on this later).
There are three parts to all PCP deals:
- Monthly Payments
- End of Agreement Decision
The initial deposit you make is largely dependent on you. Most dealerships will allow £0 deposit - this will just make your monthly repayments higher. If you have a car to part exchange, it can be used as your deposit on the new car you're buying.
Your monthly repayments are calculated by subtracting your deposit and the Guaranteed Minimum Future Value (GMFV) from the value of the car. The GMFV is how much the car is expected to be worth at the end of the finance deal.
The amount you have to pay in monthly instalments can be spread out between 24 and 48 months. The longer the finance term, the cheaper the payments will be.
At the end of the agreement you have three choices:
- Pay the 'balloon payment' which is the GMFV and own the car
- Part exchange the car and start a new deal on a new car
- Hand the car back and walk away
HP (HIRE PURCHASE)
Similar to PCP, you can take a HP finance agreement out from your car dealership. It's important to know that you will own the car at the end of the agreement.
Payments on a Hire Purchase agreement tend to be more expensive than Personal Contract Purchase because there isn't a deferred amount to be paid at the end.
The initial deposit you make is dependent on you, but typically, it is 10% of the value of the car (e.g. if the car is worth £8,000 the deposit would be £800).
Your monthly payments are calculated by subtracting your deposit from the value of the car. You can make repayments between 24 and 60 months.
At the end of the agreement you will need to pay a nominal fee (around £10) to take ownership of the car.
If you want to sort out your car finance yourself rather than going through a dealership, you can take out a personal loan from a bank or building society.
Depending on the circumstances, they can allow you to make repayments between one and seven years.
Unlike PCP or HP finance agreements, you will own the car from the outset. The total amount payable tends to be lower depending on the interest rate you receive and how many months your spread the payments over.
Finally, you could use a credit card to pay for a used card. Although this isn't a traditional finance method, it does allow you to spread the payments across several months.
This is quite a tricky method however, because you will need a credit card with quite a large credit limit from the outset and possibly be subject to a percentage-based fee when you make payment (potentially up to 3%).
The main advantage with using a credit card is the availability of 0% APR rates so that you don't pay interest on the car. Although these deals exist, they typically only last for 12 - 18 months, so you will need to continually transfer the balance to get the full benefit of the 0% APR.
Credit Card agreements are virtually endless, so you could spread the cost of payment over as many years as you needed to. It is important to note that this is not a particularly advisable method for buying a used car on finance.
USED CAR FINANCE AT 4FRONT CAR SALES
Here at 4Front Car Sales, we offer both PCP and HP finance agreements across all our used car stock starting with 0% deposits and competitive interest rates.
We can arrange finance on your behalf which is normally sorted out within the hour.