Buying a Used Car on Finance: The Basics and What to Check

Two common routes in general terms

With hire purchase, you usually pay a deposit, then make regular payments over an agreed term. Until the agreement is complete, the finance company is generally the legal owner of the car, and you become the owner once you have made all the payments and any final fee.

With a personal loan, you borrow money from a lender and use it to buy the car outright. You own the vehicle from the start and repay the loan separately. The terms, interest rates and your rights differ between these products, so ask for each one to be explained.

Other products exist as well, such as personal contract purchase, where payments are lower because a large final amount is left to pay at the end. That final payment, or the choice to hand the car back, comes with conditions such as mileage limits and condition requirements. Ask for any such option to be explained fully before you decide.

• Hire purchase: finance company owns the car until paid
• Personal loan: you own the car, repay the lender
• Terms, rates and rights vary by product
• Both involve a credit check

Look at the total, not just the monthly figure

A low monthly payment can hide a long term and a large amount repayable overall. Ask for the total amount you will pay back, including interest and any fees, and compare it with the cash price of the car.

Check the interest rate and how it is described, the length of the agreement, the deposit required, and whether there is a final payment. Make sure you understand every number before you agree.

Is it affordable for you?

Think about your income and regular outgoings, and what would happen if your circumstances changed. Remember that you will also need money for insurance, tax, fuel and servicing, on top of the payment itself.

Lenders will assess your circumstances and may decline an application. That is a normal part of the process, and it is better to be refused than to take on a commitment that you cannot sustain.

It can help to work backwards. Decide the most you could comfortably pay each month without cutting into essentials, then see what that allows, instead of choosing the car first and fitting the finance around it. A slightly less expensive car with a shorter agreement often leaves you in a stronger position.

What to check in the agreement

Read the agreement fully before you sign. Look for what happens if you miss a payment, whether you can pay off early and what that involves, any limits on mileage, and what happens if you want to end the agreement.

Find out who the lender is, and make sure you are clear on what the garage does and what the finance provider does. If anything is unclear, ask questions, take the paperwork away and consider getting independent advice.

Be cautious of extras added to the agreement, such as insurance products or warranties, and ask whether they are optional. You should be told clearly what each one costs and covers, and you are entitled to say no to things you do not want.

• Total amount repayable, including interest and fees
• Length of the agreement and the deposit
• Rules on early repayment
• What happens if you miss a payment
• Any mileage or usage limits

Combining finance with part exchange

If you are trading in a car, the value of it can reduce the amount you need to borrow. If your old car is on finance too, the outstanding amount must be settled, so ask for a settlement figure from the existing lender.

At Banks of the Tyne in Hebburn we offer finance options where available, alongside part exchange and a range of quality used vehicles. Ask us how it would work for you, and take your time before committing.

Frequently asked questions