As part of our work, we hear a lot of stories about car finance every single day. But this one was new even to us.
According to a recent survey and as reported by Motor1, many drivers in the UK are unaware that you can get car finance for used cars, too.
Are you one of them? We can’t imagine you are. After all, the closer you look, the more it turns out this story is not all it is made out to be.
Used car finance has existed since the dawn of the car industry.
First, there were new cars. But used cars were never far behind. And ever since the first car owner put up his Mercedes or Ford for sale, potential buyers have needed banks to pay for them.
It is true that some people stick religiously to the idea that you should be able to pay for a car in cash. That any loan is ultimately a financial risk and a waste of resources. That no one needs cars that are more expensive than what you have readily available on your account. And they’d rather save some more for a few years than buy on credit.
But these people have always been a vocal minority. Every day, we get tons of customers walking through the door looking for a finance deal for their used car. None of them has ever questioned the notion that you can get these for second hand vehicles, too.
So what’s up with this story?
Turns out the survey was at least partially about something else entirely.
“A new survey has revealed a third of drivers are still unaware that finance deals can be used for second-hand vehicles, as well as new cars. The research by used car site AA Cars found 31 percent of drivers had no idea which finance options are available to them when buying a used vehicle.
The study of almost 14,000 drivers revealed just 61 percent of drivers were aware that a personal loan from high-street lenders such as banks can be used to buy a used car, while less than half (49 percent) realised this was also true for Hire Purchase (HP) agreements. Just a third of those questioned (34 percent) thought Personal Contract Purchase (PCP) agreements could be used.”
So, to be precise, it is actually not true that 1/3 of drivers were unaware that finance was possible for used cars. Really, 1/3 of drivers merely did not know which options were available to them.
Which is an entirely different message to be sure.
But even then, the results seem weird.
The problem is that it’s hard to comment on the study without seeing the actual wording of the questions.
But would you really believe that “just 61 percent of drivers were aware that a personal loan from high-street lenders such as banks can be used to buy a used car”?
Or isn’t it more likely that the survey asked participants to name the financing options that were known to them and they simply forgot to mention this one?
This certainly is a lot more likely, if only for the fact that by far the largest percentage of used car buyers these days equate the process with dealer finance.
Which means they are well aware that you can take out a loan for a used car. They just prefer to get it from their trusted dealer than a larger financial institution.
What about PCPs and HPs for used cars?
Let’s just say this option is rare. In fact, it is so rare that most dealers we know of don’t even offer it.
And for good reason.
PCPs especially have long come under heavy criticism for luring customers into buying cars they could never afford otherwise. Both instruments are more expensive than bank or dealer loans once you take a long term look at them.
What’s more, the original idea behind PCPs and HPs was geared towards new cars. Although some dealers have found clever ways of transferring them to the second hand market, that doesn’t make them particularly suitable for these purposes.
Why is that?
The thing is that both these finance plans are based on two things:
a) the value of the car at the beginning of the loan term
b) the depreciation of the car during its use
For new cars, there are clearly defined prices and depreciation numbers. So there is really very little room for discussion.
With used cars, conversely, everything is up for discussion.
The dealer can pretty much set the value of the car herself. And she can set it considerably higher than what would be realistic.
Depreciation rate tables obviously exist, so you can expect a lot less manipulation here. But still, there is not one right way to calculate it and that still allows for a lot of leeway.
In short: PCPs and HPs are less than ideal for used cars.
So what does all of this mean?
It means pretty much what the study both explicitly said and what it implied:
Car buyers don’t regard bank loans as a particular relevant finance option for buying a second hand automobile. They don’t think of PCPs and HPs at all in this context. And they treat dealer finance as being synonymous with used car finance.
Is that bad news, as the article suggests? Not at all.
It’s, in fact, exactly the way it should be.
Your dealer is your main partner when it comes to buying the car and she can get you excellent financial deals as well. This is precisely why dealer finance is the de facto standard: it is cheaper, it is simpler and you’re dealing with the people you already know from the purchase.
Which means you have just one direct contact person if there are ever any issues with your car in any way.
At CCC, we have many years of experience with used car finance. We can even help you get a loan if you’ve had issues getting approved elsewhere. Bad credit ratings are in no way by default a reason for us to reject someone.
Interested? Then get in touch and find out how we can help you get used car finance for the best possible cars.
Give us a call at 0800 093 3385. Or send us a message using our contact form.