Is used car finance just too confusing?

Is used car finance just too confusing?

2 February 2020 Concept Car

Used car finance used to be easy. You’d decide on a model, then visit your local bank to arrange for a credit. Sure, you wouldn’t always get one. But at least, the process was easy to understand and quick.

Today, things have changed. Used car finance has become a lot more varied and, thus, complex. Your chances of actually getting a loan are probably better than they ever were. But finding the one that’s best for you has become fiendishly difficult.

In this article, we’ll try to make things less confusing for you. We’ll present the six most important points to keep in mind when looking for used car finance. By sticking to them, you can save yourself a lot of trouble. You can also make sure you’re only spending as much on your loan as you absolutely need.

Table of Contents

If you’re confused, you’re not alone

A recent article on This Is Money highlighted the systematic problems of the car finance industry. The feature dealt with a survey which asked participants to identify the cheapest among four different car finance options.

The four alternatives represented the most common financing methods on the market at the moment. They included PCP, HCP as well as personal loans. Each alternative had a different set of variables – varying down payments/deposits, term lengths and interest rates. Accordingly, the overall costs were considerably different.

The results of the test were shocking. A mere ten percent of those surveyed correctly identified the cheapest option. Even more than that misidentified the most expensive option for the cheapest. The remaining 80% were somewhere in the middle. Which may not sound all that bad. But it’s certainly anything but consoling.

What kind of car finance deal did I sign up for?

What kind of car finance deal did I sign up for? - Concept Car Credit
This is even more true, since another study presented an even more astounding finding. Based on data from the Society of Motor Manufacturers and Traders, the authors concluded that almost half of all drivers were unable to precisely account which used car finance deal they’d made. In other words: Almost 50% of car owners paying off an expensive loan have no idea what their payments are based on.

You could argue that all of this doesn’t matter, as long as your car works fine and you can pay off your monthly instalments. However, there are consequences to this ignorance. The analysts concluded that there was a gap of nearly £3,000 between the best and the worst financing option on the market. Over the course of the different cars in our lives, this can add up to a total of £11,000 unnecessary used car finance costs.

Especially if you’re pressed for cash anyway, this is an inexcusable state of affairs. So what can you do to make used car finance less confusing?

Here are the best recommendations from our experts at Concept Car Credit.

Car finance tip #1: Always buy used

Granted, we’ve just shown you how complicated used car finance is. So why would we go on to nonetheless advise you to buy used?

Very simple: New car finance is even more complicated – and there’s even more cash involved.

Just by buying a used car, things won’t miraculously fall into place. However, the risk of making a really bad decision and the choice of financing options are both considerably smaller. This means that buying used is by far the safer option, as much as you may love the feel, look and smell of a new vehicle.

Car finance tip #2: Don’t lease

Leasing has an extremely good reputation. Whereas personal loans involve much-maligned banks, HCPs are often considered too expensive and restrictive and PCPs are associated with insurance mis-selling, leasing has remained mostly scandal-free.

That’s quite remarkable, considering leasing is usually by far the most expensive option of all. With leasing, you’re never the actual owner of the car, meaning you’ll never be able to use it without paying a monthly rate. In comparison, you’ll eventually pay off even the worst private loan at some point, after which your recurring costs drop considerably.

This is why we recommend against leasing, although it may seem quite interesting at first. Instead, search for the best possible alternatives from the realm of personal credit, PCPs and HCPs.

Car finance tip #3: Really do the maths

A car is the second biggest purchase that most of us will make in their lifetime. It is even the biggest purchase for many others. So you’d expect car buyers to make absolutely sure they’re taking the right decision.

Surprisingly, that’s not at all what’s happening. It appears many still buy their car on impulse. Others allow dealers to intimidate them into not asking the relevant questions. Yet others simply feel the calculations involved in a car finance deal are too hard.

None of that is an excuse. If you have four options in front of you, run them through your calculator until you’re absolutely sure how much each one costs. Then, select the one that’s best for you and which falls within your budget constraints.

Car finance tip #4: Understand the basics

Understand the basics - Concept Car Credit
Yes, used car finance isn’t easy. Certainly, it requires some basic financial know-how to get behind the mechanics of a PCP or an HCP deal. But you should at least understand the fundamentals of these approaches to car finance and what they mean for you personally.

Simply put, this is how they work:

Private Loan

With a private loan, you borrow the required sum from your bank, dealership or credit union.

Interest is based on how much you’re borrowing, the risk of you defaulting on the loan and the length of the term. A down payment is a standard practise, but not always a given.

Hire Contract Purchase

HCP is a variation on the private loan.

You agree to pay back the costs of the car over a certain period of time. During this period, you owe the same amount each month until your entire debt has been repaid.

The difference with a private loan is that you can only treat the car as yours once you’ve paid back the loan in full. You may not even be allowed to exceed a certain mileage limit.


If you’re leasing a car, you’re essentially renting it long-term. You’re never the legal owner of the car.

The costs are based on a key determined by the leasing company, which takes various factors into consideration. Leasing leads to lower monthly instalments, but usually the highest overall costs.


A PCP is a variation on a lease arrangement. The twist is this: With a PCP, the loan is based on the depreciation of the car only. This means the amount you need to borrow is a lot lower. At the end of the term, you can decide to buy the car or set up a new contract for a different vehicle. On the downside, you will definitely need to pay a deposit.

For most UK drivers, a dealership loan will be the best option. But as that study indicated: You’ll have to crunch the numbers yourself each and every time.

Car finance tip #5: Carefully read your contract

Carefully read your contract - Concept Car Credit
If you’re going to spend a few thousand Pounds on a vehicle, you should know exactly what the contract says. This doesn’t mean that you need to spend weeks studying and analysing it. But you should at least be able to answer the following questions:

  • What kind of used car finance arrangement am I agreeing to: Personal loan, PCP or HCP?
  • How much will I be paying each month?
  • How long will the loan run?
  • What happens at the end of the contract?
  • How much are the overall costs of the loan?
  • Am I buying anything other than the car – i.e. insurance, any kind of extras?

Car finance tip#6: Try to get your down payment up

This is one of the biggest improvements you can make. Let’s return to the original study we mentioned at the beginning of this article. If you remember well, 20% of participants completely misread the costs of the options. Two of the alternatives were particularly confusing to them:

  • A hire purchase loan at 12 per cent APR over five years with a deposit of £4,000.
  • A flat rate hire purchase loan at 12 per cent over four years and a deposit of £1,000.

Which of the two is the cheapest option, would you say, which the most expensive?

Even without crunching the numbers, any experts will instantly recognise that the first option is less expensive than the second. The simple reason is that the high down payment significantly reduces the overall amount of credit. The impact this has on the total costs can not be overestimated.

That’s why you should make the highest deposit your can possibly afford. And don’t worry if that’s not a lot: Every Pound invested into the down payment repays itself double.

Used car finance at CCC

So these are the recommendations you should take into consideration when looking for a used car. Of course, we forgot to include one last thing: Look for a great dealer who can help you find the car finance package that’s right for you.

At CCC, this is precisely what we do. We tailor every single contract to your personal needs and we allow for a wide range of variations so you can get the best possible deal.

Talk to us now, especially if your credit rating isn’t ideal. We are always looking to make things work for our customers.

2 February 2020 Concept Car