How does finance work on used cars?

Posted on 27th July 2023

Purchasing a car on finance is ideal if you don’t want to, or can’t, pay the full cost upfront.

This is why is it the most preferred payment method to buy a car!

This guide will tell you everything you need to know about car finance - from what each type of finance means, to what finance is best for you.

HPL Motors offer PCP, HP, and sub-prime finance on all our used cars.

We have a soft search tool where you can find out if you are likely to be accepted for finance without affecting your credit score. Click here to find out.

Car finance is when you borrow money from a lender to cover the cost of the car. There will be a non-refundable deposit and regular payments over a certain period length, which you will decide.

There may be other terms of the contract, for example not exceeding the annual mileage and following a service plan.

Benefits of used car finance

Choosing to finance your car won’t just save you money, there are other massive benefits too.

We have listed all the positives in this blog post.

What finance is best for me?

There are different finance options that offer slightly varied payment plans for your used car.

It is important to speak to your sales advisor about your options so you choose the best one for you.

The main things to consider when choosing which finance deal is:

  • Your personal finances
  • What mileage do you usually do a year
  • If you want to own the car at the end of the contract
  • If the car is for personal or business use

HPL Motors offer the following types of car finance:

Personal Contract Purchase

PCP finance is the most popular way of financing a car. It is solely for personal use and can be the most flexible option.

You will put down a small deposit up-front and then make low monthly payments. You will also agree to an annual mileage for the vehicle and a contract length, typically between 3 to 5 years.

You pay back the amount the lender predicts your car will depreciate in value, minus the deposit, over the length of your contract. This is called the MGFV, Minimum Guaranteed Future Value.

For example, if your car is worth £16,000, and it is predicted that after 4 years the car will be worth £9,000. You will pay back the £7,000 it has deprecated over the 4 years (48 months). 

This often means that your monthly payments will be lower than other finance options.

This also means that the bulk of your repayments is left until the end of the finance deal, this is called a ‘balloon payment’.

When you pay off this larger sum, you can keep the car. But if you don’t want to keep the car, you can just return it at the end of the contract instead. 

If you like changing your car rather regularly and enjoy some flexibility, PCP might be ideal for you.

If your car is worth more than the MGFV, which can happen if you keep your car in tip-top condition and have a lower-than-agreed mileage, you might have positive equity.

This means you can use the difference between the final payment and its true value as a deposit on another car. You can upgrade while keeping your monthly payments the same, or even lower!

Hire Purchase

HP finance also consists of a non-refundable deposit and monthly payments, but no annual mileage cap.

You will be buying the vehicle outright - you will pay back both the loan and the interest. Once you make your final payment, the car is yours!

HP finance contracts usually need a deposit of around 10%, but the bigger the deposit the lower your monthly payments. If you choose a longer contract, this will also lower your monthly payments.

For the lowest monthly payments, a long contract and a big initial deposit are ideal. But unfortunately, this will mean you would have more interest to pay back over time, which could increase your costs.

Unlike PCP finance, there will not be any balloon payment at the end. Your repayments will be split equally across the agreement, which is usually between 3 to 4 years (36 to 48 monthly payments).

The stable payments mean it is easier to budget and plan for your finance deal. Therefore, this finance deal is best if you need regular payments and if you want to keep the car in the end.

You can use HP finance for business and personal vehicles.


If you have a lower credit rating, you can still get car finance. 

Subprime lending is usually offered at higher rates than other finance options and is at higher risk.

But subprime lending can help you get the car you need. Get in touch to find out if this is the best option for you.

How do I finance a car?

If you have decided to finance your next car, get in touch with our dedicated team who will help find the best deal for you.

If you want to know whether you are likely to be accepted for a finance deal, use our soft search form. This will not impact your credit score.

Each car on our website has a finance calculator on its page. You can input your credit rating, ideal deposit, payment period, and annual mileage to find out what your monthly payments could be. 

Calculating your car payment with this tool lets you know what the first payment, final payment, total payment, and interest charges will be.

We have cars available from £110 per month - browse the selection online.

We have over 800 approved used cars for sale across our three sites in Oldham, Preston, and Atherton. HPL Motors stock all popular makes and models, from Kia Niro to Tesla. Whether you love electric cars, sports cars, or family cars, we have the right one for you.

But if you cannot find exactly what you are looking for, get in touch. We can help find your perfect car for the best price. 

Car buyers can choose their perfect next car at HPL Motors and drive away happy. Many of our cars are good to drive away on the same day.

We sell used cars from Manchester and Lancashire to customers all across the country.

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