Used Car Loan Rates UK: What You Need to Know

Navigating Used Car Loan Rates in the UK

Securing the right finance for a used car can be daunting, given the wide range of loan rates and products on offer. This guide explains how used car loan rates work in the UK, what affects them, and how to choose the right option.

Who Should Read This?

If you’re considering buying a used car in the UK and want to spread the cost with finance, this article is for you. It’s especially relevant if you want to compare loan rates, understand your options, or avoid costly mistakes.

Key Concepts: Understanding Used Car Loan Rates

When talking about used car finance, the most important figure is the Annual Percentage Rate (APR). This rate represents the total cost of borrowing, including interest and fees, over a year.

There are several types of finance for used cars:

• Personal Loan: Borrow a fixed amount to buy the car outright, then repay in monthly instalments.

• Hire Purchase (HP): Pay a deposit, then monthly payments. Ownership passes to you after the final payment.

• Personal Contract Purchase (PCP): Lower monthly payments, with an option to buy the car at the end or return it.

Used car loan rates typically range from 6% to 20%, depending on the lender, credit score, and loan amount. Lower rates are generally available to those with strong credit histories.

Used Car Finance Options in Detail

Let’s break down the main ways to finance a used car and their typical rates:

1. Personal Loans

• Offered by: Banks, building societies, online lenders

• Typical APR: 6%–12%

• Repayment period: 1–7 years

• Ownership: Immediate

2. Hire Purchase (HP)

• Offered by: Dealerships, finance brokers

• Typical APR: 8%–18%

• Deposit: Usually 10% of car price

• Repayment period: 1–5 years

• Ownership: After final payment

3. Personal Contract Purchase (PCP)

• Offered by: Dealerships, finance companies

• Typical APR: 7%–15%

• Deposit: Often 10%+

• Repayment period: 2–4 years

• Balloon payment: Required to own car at end

4. Dealer Finance

• Convenient but often higher rate

• Can include special offers

5. Specialist Brokers (like Kandoo)

• Compare multiple lenders

• Potential for better rates and terms

Cost, Impact, Returns, and Risks

The cost of a used car loan is more than just the interest rate. Additional charges may include arrangement fees or early repayment penalties. Missing payments can damage your credit score and may result in repossession of the vehicle.

Key impacts:

• Higher rates increase total repayment amounts.

• The longer the loan term, the more interest you pay overall.

• Cars depreciate quickly, so you could owe more than the car is worth if you exit early.

Always review the total repayable amount, not just the monthly payment.

Eligibility, Requirements, and Conditions

Eligibility for used car loans in the UK is typically based on:

• Credit score: Higher scores unlock better rates.

• Employment status: Lenders look for stable income.

• Age: Minimum age is usually 18 or 21.

• Residency: UK residency required.

• Car age and value: Some lenders set limits on car age and mileage.

Providing accurate information during your application improves your chances and helps avoid delays.

Step-by-Step: Getting a Used Car Loan

1. Check your credit score online

2. Set your budget and loan amount

3. Compare rates from banks, brokers, and dealers

4. Gather documentation (ID, income proof)

5. Submit your application

6. Review and accept your loan offer

7. Finalise purchase with dealer or seller

8. Start your repayments

Pros & Cons: Weighing Your Options

Pros:

• Spread the cost of your car

• Access to newer, more reliable vehicles

• Fixed payments aid budgeting

Cons:

• Interest increases total cost

• Missed payments can harm credit

• With PCP/HP, you don’t own the car outright until the end

• Early exit fees may apply

A table summarising key points:

Before You Decide: Watch Out For

• Hidden fees: Arrangement, documentation, or early repayment fees can add up.

• Balloon payments: PCP deals often require a large lump sum at the end.

• Depreciation: Cars lose value rapidly; check whether you’re over-borrowing.

• Insurance: Some loans require fully comprehensive insurance.

• Total repayable: Focus on total cost, not just monthly payments.

Always read the small print and ask questions if unsure.

Alternatives to Used Car Loans

• Paying cash: No interest, but uses savings.

• Credit cards: 0% deals may work for small amounts, but rates rise after intro period.

• Leasing: Lower commitment, but you never own the car.

• Guarantor loans: For those with poor credit, but rates are high.

• Peer-to-peer loans: Sometimes offer competitive rates.

Consider all options before committing.

Frequently Asked Questions

1. What’s a good APR for a used car loan?
A good APR is typically below 8% for those with strong credit. Rates above 15% are considered high.

2. Can I get a used car loan with bad credit?
Yes, but expect higher rates. Specialist lenders or brokers may help.

3. How much can I borrow for a used car?
Loan amounts typically range from £1,000 to £50,000, depending on lender and affordability.

4. Is dealer finance more expensive than a bank loan?
Often yes, but dealer promotions can sometimes make them competitive.

5. Can I repay my loan early?
Usually, but check for early repayment charges.

6. Do I need a deposit?
Personal loans usually don’t require one, but HP/PCP deals often do.

Next Steps

Take time to check your credit score and gather quotes from multiple lenders before making a decision. Consider speaking with a reputable broker, like Kandoo, to compare your options and find the most competitive rate for your circumstances. Always read all terms and ask for clarification if needed.

Disclaimer

This article is for informational purposes only and should not be considered financial advice. Always consult a regulated financial adviser or loan provider before making any financial commitment. Rates and terms can vary and are subject to change.