As new car costs continue to rise, many drivers are looking toward a used vehicle for their next motoring purchase. If you’re part of this crowd or are considering buying pre-owned, you may wonder whether finance is an option.
While finance is more commonly associated with new car purchases, you can still get a loan for a used vehicle. However, financing a pre-owned car can be more difficult, as lenders may have specific requirements.
Lenders generally view second-hand vehicles as a higher risk for financing because of their higher likelihood of mechanical problems and value volatility. There are also factors that can impact the quality of your finance terms, such as your credit score.
Our guide streamlines your understanding of the used vehicle finance process so you can confidently move forward. Keep reading to learn more about what you can expect.
Factors affecting second-hand car finance eligibility
Key factors influencing your ability to get finance approval include:
- Credit history
- Income status
- Your age
- Car specifications
Let’s take a closer look at how lenders evaluate each factor.
Credit history overview
Don’t panic—there’s no minimum credit score requirement for vehicle finance approval in the UK. You also don’t technically need a driver’s licence for car finance. However, your credit history will affect the quality of the terms you receive. Lenders evaluate credit in excellent, good, fair, and poor tiers.
Equifax ranges include:
- Excellent: 811 to 1000
- Good: 670 to 739
- Fair: 580 to 669
- Poor: 300 to 579
TransUnion differs with the following ranges:
- Excellent: 628 to 710
- Good: 604 to 627
- Fair: 566 to 603
- Poor: 551 to 565
Lastly, Experian ranges are:
- Excellent: 961 to 999
- Good: 881 to 960
- Fair: 721 to 880
- Poor 561 to 720
Higher credit scores often grant you lower finance interest, greater borrowing limits, and longer repayment periods.
Income and employment status
Lenders will naturally be wary of giving money to someone without a job. In addition to having work, you’ll want to display consistent income to reflect as a reliable finance candidate. Your income level will also impact borrowing amounts.
Your age
While there’s no minimum credit score required for car finance in the UK, you do have to be at least 18. By law, anyone under 18 in the UK is unable to receive a credit agreement. You’ll still have to wait to apply for finance if you’re 17 with a full driver’s licence.
Vehicle specifications
A car’s age, mileage, condition, and model type are all specifications that can make or break your finance approval and its terms. Lenders take on more risk if they approve a loan on an old or high-mileage vehicle that is more likely to experience mechanical issues. Additionally, its condition and model type can affect its resale value, and the resale value is more difficult to predict than new cars.
Licence status
A full driver’s licence will help you gain second-hand vehicle finance approval since it proves your identity and eligibility to operate a car on roads. However, if you’re on a provisional licence or don’t yet have your licence, you can still apply for finance—but it’ll be more challenging to find a lender.
Types of finance for second-hand cars
Knowing which type of used car finance is best for you will save you time during the application process and possibly money in the long term. Hire Purchase (HP) and Personal Contract Purchase (PCP) are the two most common types of pre-owned vehicle finance in the UK.
Hire Purchase (HP) finance
HP finance involves paying for a new or used car in installments over a determined period. You’ll begin by putting down a deposit, usually around 10% of its value, before monthly payments, which cover the rest of the vehicle’s full value plus interest. After the finance term ends, you can pay an option-to-purchase fee to own the car fully. Option-to-purchase fees are usually around £100.
HP borrowers are responsible for used car repair and maintenance costs. Lenders will make a hard credit check during your application.
Personal Contract Purchase (PCP) finance
PCP finance is more common for new vehicles but is becoming increasingly popular for used cars. Like HP, a PCP agreement involves a borrower paying a deposit and monthly payments on a car. However, PCP monthly payments are lower on average than HP since they cover the car’s depreciation during the finance period instead of the total value.
After a PCP term ends, lenders offer you the choice of making a balloon payment to keep the vehicle. A balloon payment amount is calculated at the start of a PCP contract with a Minimum Guaranteed Future Value (MGFV) that projects how much the car will be worth at the end of its term.
Lenders can reconcile an MGFV with the unpredictable nature of used vehicle values using tactics like conservative estimates, industry tools, and other data. Still, most lenders won’t approve a pre-owned car for PCP finance if it’s older than 5-8 years. You may also face condition clauses for used car PCP finance, such as mileage limits. You’re likely not going to find a loan for a vintage motor unless you’re working with a specialty lender.
What documents do you need for used car finance?
Knowing what kind of documents and information you’ll need to provide for pre-owned vehicle finance approval will help you get organized and remain ahead of the curve.
Personal information
Personal details for a used car finance application include your full name, birthday, marriage status, and living situation. The application will provide fields for this information.
Past and current employment details
While lenders are likely to ask about your past employment and current job status, inquiries into past work typically stretch back up to three years. Self-employment also qualifies as employment in this context.
Bank information
Like your employment history, lenders will ask for current and past banking history, generally up to three years ago. You can use a previous bank’s information if you’ve switched banks. Providing proof of income is separate from employment details and bank information. Proof of income is more tied explicitly to documentation like recent paystubs, deposits, and tax returns.
Proof of residency
We previously mentioned how owning a driver’s licence can make pre-owned finance approval easier, but a licence may not be a core means to prove your residency since the listed address could be old. Instead, prepare to provide a document like a recent utility bill. Frequent address changes could cause lenders to view you as a higher-risk applicant.
How guarantors can help during used car finance
If a guarantor, someone who agrees to pay your monthly balance, signs on, you may still qualify for used car finance despite red flags for lenders like a low credit score and income.
Are you ready to apply for second-hand car finance?
You don’t have to wait any longer to start applying for second-hand car finance.
In addition to a user-friendly finance calculator for estimating pre-owned vehicle payments, Car Finance Today provides helpful information on HP agreements and PCP loans, such as answers to FAQs and resources helping you find deals matching your needs and lifestyle.
If you’re interested in learning more about topics like getting auto finance with fair credit, head over to our site’s blog for more guidance.
