When looking to buy a used car, there is a wide array of financing options. But which one suits you best. When it comes to making such an important decision, there are various things to consider, and this guide helps you comprehend the best option for you.
Finance packages are not just for people in the market for a new vehicle. There is a wide array of options on used cars, and thanks to a burgeon credit industry and low-interest deals, financing can be an excellent way to get a relatively expensive used car that you might otherwise be unable to afford.
More often than not, it is the franchised dealerships and car supermarkets that offer competitive finance packages that appeal to all kinds of budgets.
A Dive to GAP Insurance
You do not have to deal with the larger dealerships to get your dream car with financing. The car you want might be on the forecourt of a smaller dealership, but they might not be able to give you an appealing financing option. In such cases, a personal loan might be the best solution.
No matter the route you take, you may want to consider ‘GAP insurance,’ which is used to cover the difference between the car’s cash value and how much you still need to pay in case it sustains damage. This amount can vary widely, and if your vehicle ends up being written off, It will cover the amount that you owe on the car loan, lease, or any other finance plan.
Comparing the Annualized Percentage Rate or APR is a vital step when financing a car. From here, you will know how much interest will be added on to the loan, and the amount you need to pay.
Used Car Dealer Finance
The larger dealerships and car supermarkets may have higher rates compared to their smaller counterparts, but purchasing a vehicle from one comes with the benefit of thorough inspections, condition checks, as well as a warranty and the service history.
The almost new, ex-demonstrator models are usually appealing to people as they generally haven’t covered too many miles. You will also come across high-spec versions that go for an appealing discount. A vehicle is usually considered ex-demonstrator if it has been used by customers on test drives or by management.
Most official and franchised dealerships have their own finance department. Normally, you will have the following car financing options:
1.Personal Contract Purchase
Also referred to as PCP, a personal contract purchase allows you to pay an initial deposit and a set number of monthly installments, usually between 3 to 5 years. At the end of the term, you have the option to pay a “balloon payment” top purchase the vehicle outright or return it to the dealer. If you pick the latter, you will be able to put the equity you have built up towards the deposit of the next vehicle.
2.Hire Purchase
Also referred to as HP, this form of financing is similar to a PCP deal, but the last repayment makes you the owner of the vehicle without having to make a ‘balloon payment’. This, of course, means that you will be paying more each month, as you’ll be paying for the vehicle itself instead of covering the depreciation costs.
Car Supermarket Finance
The official car dealerships may have used-vehicle buying experiences pretty close to purchasing a new car, but they are also the costliest. That is because dealerships aim for a higher profit margin and often deal with nearly new cars. So, if you have a tight budget, or want a better deal, then car supermarkets present a good solution and also offer finance.
Car supermarkets usually operate from big sites, with hundreds if not thousands of vehicles, and usually sell hundreds every month, allowing them to lower the prices. This makes purchasing cars cheaper, but there is rarely a room for bargaining. The buying experience and aftersales standards also tend to be lower compared to official leaderships.
Both Hire Purchase and PCH are offered by car supermarkets, but they are also available through 3rd party lenders. If you plan to take this route, ensure they are regulated by the FCA (Finacial Conduct Authority) before moving forward.
Personal Loans
If you come across your dream car at a dealership that does not have in-house finance or think you can secure a better deal, you may want to consider a car loan. However, personal loans tend to have a higher interest than financing options tailored specifically for car purchases.
In this regard, the most important consideration is whether to go for a secured or unsecured loan. For secured personal loans, you need an asset like your house as collateral. If you are unable to pay the loan, you run the risk of house repossession, just like conventional home loans.
The unsecured type, however, does not need a collateral, but a good credit stand is essential. They also have higher interest rates and are generally designed for smaller amounts. If you have a poor credit score, a guarantor loan is perhaps the best route to take for buying a used car, even though it has some downsides you shouldn’t overlook.
If you are looking to get a used car through finance, consider deals designed for such purchases instead of a personal loan. That’s because the APR is often lower and if something goes south, the only thing in repossession risk is the car.
Tips for Used Car Finance
Regardless of the route you pick, it is important to know that you are borrowing money at the end of the day. You will need to be certain that you can afford the repayments, throughout the contract period, even if your situation, including employment, changes. Some financing options may have the option to terminate the contract early, but this usually comes with hefty fees.
Make sure that you go through all and comprehend the terms and conditions of every potential financing option. Also, try and get the lowest APR available, as it makes it cheaper to secure a loan.
Most firms are willing to give you a finance deal or loan even if you have a poor credit score, but this option usually comes with a high-interest rate, something to keep in mind.
Also, regardless of the route you take, if your car is written off, a GAP policy can save you thousands of dollars, so ensure you look into it.
Also, ensure you shop around as interest rates tend to vary widely. In some cases, you may want to consider going for another car if better finance is available.
With these tips, you should be able to make an informed decision when purchasing a used car on finance.
