How to pay for a used car: Popular options

The method used to pay for a used car isn’t the same for everyone. The right option depends on what fits your budget and feels right for you. Some people get a car loan, others use dealer financing, and some pay cash up front. And then there are those who just go all out for a new set of wheels.

Each option has its own benefits and downsides, so let’s talk about the most popular ways to pay for a car and what might work best for you.

How your payment choice affects ownership and costs

The way you pay for a car shapes both your experience as an owner and the costs you’ll face over time. Paying the entire cost of the car up front (i.e., buying a car outright) makes things simpler and gives you a sense of full control from the start.

At the same time, exploring different finance options provides flexibility, especially if you’re thinking about another car down the line or have other financial priorities. Even so, each specific way to finance comes with its own impact on your monthly budget, long-term costs, and the sense of ownership you feel.

Also read: How much should you spend on your first car?

Car finance

When it comes to car finance, the goal is usually to spread the cost of a vehicle in a way that works with your budget. At Carplus finance deals come in different forms, with HP and PCP being two of the most common:

• Hire Purchase (HP): Involves paying a deposit and then regular monthly repayments. Once all payments are made, the car is entirely yours.
• Personal Contract Purchase (PCP): This also starts when you pay a deposit and make monthly repayments. You can give the car back, make a final payment to purchase it, or use it as a step towards another vehicle.

One key feature of PCP is theguaranteed future value, which sets an agreed purchase price for the car at the end of the agreement. The deal can also include an interest-free period.

At Carplus we can make comparing HP and PCP easier: we’ll show side-by-side quotes from multiple lenders, explain typical deposit and monthly amounts, and run a soft credit search so you can see likely deals without affecting your credit score.

Paying for a used car with cash

Paying with cash is often the simplest way to buy a car, especially a used one. Since you avoid interest and monthly repayments, cash is the cheapest option in the long run. You get full ownership immediately, and the process tends to be faster because there’s no need for finance approvals or contracts.

Also, when you pay in cash, you may have more leverage during negotiations. Many sellers prefer straightforward transactions.

Paying for a used car with a credit card

Using a credit card to pay for a car is an option for some buyers, though it comes with specific considerations. When you buy a car with a credit card, you benefit from additional protections, such as Section 75 protection under the Consumer Credit Act, which covers certain disputes or issues with the purchase. Paying via credit card also offers flexibility if you plan to manage your cash flow, for example, by using a balance transfer to pay off the amount over time.

However, interest rates and fees add up quickly if the balance isn’t cleared promptly.

Using a personal loan to buy a used car

Taking out a personal loan is an option if you don’t want to pay the full amount up front. When borrowing through a personal loan, you’ll pay back the amount in regular instalments over a set period. However, because personal loans come with higher interest rates than some other finance options, be sure to calculate how much you’ll pay in total.

If you want to borrow money for a used car, see if the flexibility and control over the repayments are worth the extra cost.

Leasing a used car

Personal Contract Hire (PCH) is a form of long-term leasing. You pay a fixed monthly fee to use the car for a set period, usually two to four years. At the end of the agreement, you simply hand the car back. There’s no option to buy.

Leasing can include extras, such as road tax and breakdown cover, in the monthly cost, and you can add maintenance packages for predictable running expenses. However, you’ll need to stick to the agreed mileage limits and keep the car in good condition to avoid extra charges.

How to choose the best way to pay for a used car

Your monthly budget, long-term ownership goals, and credit situation all play a role in finding the right payment method.

Questions to ask before choosing a payment method

Think carefully about your finances and what you could pay without stretching your budget:

• What will my monthly repayment be, and can I comfortably afford to pay it?
• Can I cover the entire cost if I decide to buy the car outright?
• Will my plan cover the full price of the vehicle, or just part of it?
• If I finance, do I know exactly how much I’ll pay over the term of the agreement?
• How much could I pay up front, and am I able to pay a larger deposit if needed?

Compare monthly costs vs. total cost of ownership

Look beyond immediate payments and consider the total car costs over time. Think about how you plan to pay off the balance, whether through regular monthly payments or a lump sum payment. Some agreements require a final lump sum at the end of the term. If you know this ahead of time, along with any associated fees or charges, planning becomes so much easier.

Traditional ways of financing (usually two to five years in total) give you a clear schedule for repayments. This should help you find the most cost-effective way to manage them.

Should you own the car or return it later?

If you hand the car back at the end of the contract, you can avoid long-term depreciation and switch to another car more easily. Choosing a plan with a balloon payment to keep the vehicle may make sense if you need a car for the long term and want predictable costs. One isn’t necessarily better than the other; they are just different.

How your credit score affects your options

Your credit score affects how you pay for the car and the options available to you. A higher score makes it easier to secure favourable finance terms, and a lower one could limit the deals a dealership is willing to offer. Even when paying with a credit card, your credit history influences the limits and conditions of the transaction.

Look up your score ahead of time and check for any errors or outstanding debts to find the best approach for your situation.

Final words

There are several ways to pay for a car, and each comes with its own impact on ownership, monthly repayment, and how quickly you can pay back what you owe. At the end of the day, it’s all about what feels right for you and your situation. Take a little extra time to weigh your options and get behind the wheel the right way.