Used car finance: HP, PCP and loans on used cars explained
Used car finance explained: hire purchase vs PCP vs personal loan, typical APRs in 2026, vehicle age limits, the FCA redress scheme and the Irish half rule.
· 9 min read
Used car finance is any credit arranged to buy a second-hand car: hire purchase (HP), a personal contract purchase (PCP) or a personal loan. In the UK it is the dominant way used cars are sold at dealerships – FLA members financed 116,690 used cars in June 2026 alone, worth £1.83 billion, and about 1.39 million used cars in the twelve months to June. Typical advertised rates in autumn 2026 run from roughly 9.9% to 12.4% APR representative at large used-car retailers, with HP the most common product on cars over three or four years old. This guide explains how each product works, what it costs, which cars lenders will finance, and what dealers must get right under the FCA's rules and the new redress scheme.
How used car finance works
Whatever the product, the structure is the same: a lender pays the dealer for the car, the customer repays the lender in fixed monthly instalments, and the dealer acts as a credit broker in between. The customer does not own the car until the agreement is settled; the lender holds title, which is why a car finance check is essential before any dealer buys a car from a private seller.
Three numbers drive the monthly payment:
- Amount financed – price minus deposit and any part-exchange value.
- APR – the annual cost including interest and fees, which must be shown on every offer.
- Term – usually 12 to 60 months on HP, 24 to 48 on PCP.
A fourth number applies only to PCP: the guaranteed minimum future value (GMFV, the "balloon"), which is deferred to the end of the term.
Hire purchase, PCP or personal loan?
| Hire purchase (HP) | PCP | Personal loan | |
|---|---|---|---|
| Who owns the car during the term | lender | lender | buyer |
| Deposit | typically around 10% | often 10% or more | none required |
| Monthly payment | higher – pays off the whole car | lower – part of the price is deferred | depends on term |
| End of term | car is yours after the option-to-purchase fee | pay the balloon, hand the car back or part-exchange | nothing to do |
| Typical APR on used cars (2026) | about 8 – 18% | about 7 – 15% | about 6 – 12% |
| Typical term | 1 – 5 years | 2 – 4 years | 1 – 7 years |
| Best for | older or higher-mileage cars, buyers who want to own | newer used cars (under 3 – 5 years), buyers who change cars often | buyers with good credit who want flexibility |
HP dominates the used market because lenders find it hard to guarantee a future value on an older car. PCP is widely offered on approved-used and nearly-new stock, where residual values are predictable. Personal loans from a bank are often the cheapest route for customers with strong credit, but the dealer earns no commission and has no part in arranging them.
A worked example on a £15,000 car with a £1,500 deposit over 48 months: at 9.9% APR on HP the customer pays roughly £340 a month and owns the car at the end; on PCP with a £6,000 balloon the payment drops to about £235 a month, but £6,000 is still owed after four years.
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Request accessWhat used car finance costs in 2026
Representative APRs advertised by large UK used-car retailers in autumn 2026 range from about 9.9% to 12.4%. Brokers and comparison sites put the typical band for HP at 8–18% and for PCP at 7–15%, depending on credit score, deposit, loan size and the age of the car. "0% APR" deals on used stock exist but are usually tied to specific cars with an inflated screen price – the finance is not free, it is built into the price.
Beyond interest, customers should budget for:
- an option-to-purchase fee at the end of HP or PCP agreements, typically £1 to £10 in the UK,
- excess mileage charges on PCP if the agreed annual mileage is exceeded,
- damage charges on PCP returns beyond fair wear and tear.
The cost of the finance also depends on the car's price, which is why a sensible used car pricing strategy matters for both sides: an overpriced car financed at 12% is expensive twice over.
Which cars can be financed? Age and mileage limits
Most lenders set two limits: a maximum age (and often mileage) at the start of the agreement and a maximum age at the end. A lender that allows a car to be no more than 12 years old at the end of the term will finance an eight-year-old car over four years but not over five. Cars over ten years old, imports with no UK history, Category S or N write-offs and cars with mileage above about 100,000 are either excluded or placed with specialist lenders at higher rates.
For dealers this has a practical consequence: stock that falls outside the main lenders' criteria sells to a smaller pool of cash buyers and should be priced accordingly. Lender panels with several funders reduce the number of cars you cannot offer finance on – the mechanics of panels and commission are in our guide to car financing for dealers.
Used car finance for dealers: rules and the FCA redress scheme
Arranging finance is a regulated activity. UK dealers need FCA permission as a credit broker, must present products clearly, assess affordability through the lender, and since July 2023 meet the Consumer Duty standard of good outcomes for retail customers. In the EU, the new Consumer Credit Directive (EU) 2023/2225 applies from 20 November 2026 and tightens advertising, creditworthiness assessments and the information given before a contract.
The biggest change in 2026 is the FCA's motor finance redress scheme (policy statement PS26/3, final rules published 30 March 2026). It compensates customers whose finance agreements between 6 April 2007 and 1 November 2024 contained an unfair, inadequately disclosed commission arrangement. Three features trigger redress:
- Discretionary commission arrangements – where the broker could raise the customer's interest rate to earn more commission (banned since January 2021).
- High commission – at least 39% of the total cost of credit and 10% of the loan amount.
- Tied arrangements between broker and lender, with exceptions for clear manufacturer–lender–franchised dealer links.
Lenders deliver the redress, with implementation starting on 30 June 2026 for agreements from April 2014 and on 31 August 2026 for older ones; the complaints window stays open until 31 August 2027. The FCA estimates roughly £7.5 billion in payouts. For dealers, the lesson is permanent: commission must be disclosed, rates must not depend on the broker's reward, and records showing how a lender and rate were chosen are your defence.
Used car finance in Ireland
Irish rules differ in two ways that matter for cross-border dealers. Since 2022, providers of hire purchase and PCP agreements must be authorised by the Central Bank of Ireland, and the Consumer Protection Code applies to them. And under the Consumer Credit Act 1995, the half rule lets a customer end an HP or PCP agreement at any time by returning the car once half of the total HP price has been paid – or by paying the difference up to that half. The CCPC warns customers never to sign a voluntary surrender form instead, because it waives that right.
PCP is now common on second-hand cars in Ireland, which makes the GMFV sensitive to the used market: if values fall, the customer has no equity at the end of the term and the dealer has a harder renewal conversation. Pricing stock against live market data – the method in used car valuation for dealers – keeps those balloons realistic.
Does offering finance help sell used cars?
Yes, measurably. FLA members funded almost nine in ten private new car purchases in 2025, and point-of-sale finance on used cars has held above 1.3 million agreements a year even while volumes dipped 2% in the first half of 2026. A dealer who cannot quote a monthly payment loses the customer who thinks in monthly budgets – which is most of them. Finance commission also adds to the margin on each car; how much, and how to count it honestly, is covered in car dealer profit margin.
The condition is that the car is priced right in the first place. A monthly payment hides a high price only until the customer compares it with the market, and a lender's valuation check will catch an overpriced car before the deal is written. Checking what comparable cars are actually listed for across Europe takes a minute with the MyCarDealer market price.
Frequently asked questions
What is the typical APR for used car finance?
In autumn 2026, large UK used-car retailers advertise representative rates of roughly 9.9% to 12.4% APR. Across all lenders, HP typically runs 8–18% and PCP 7–15%, with the best rates for strong credit profiles and newer cars.
Can I get PCP on a used car?
Yes, usually on cars under about three to five years old with predictable future values. Older or high-mileage cars are normally offered on hire purchase instead.
Is it better to get a personal loan or dealer finance for a used car?
A bank loan is often cheaper for buyers with good credit and gives immediate ownership. Dealer finance (HP or PCP) is secured on the car, is easier to obtain with average credit, and the dealer handles the paperwork.
How old can a car be for finance?
Many lenders cap the car's age at the end of the agreement, commonly around 10 to 12 years, and set mileage limits of about 100,000 miles at the start. Older cars can still be financed through specialist lenders at higher rates.
Who is affected by the FCA motor finance redress scheme?
Customers whose UK finance agreements between April 2007 and November 2024 included a discretionary commission arrangement, high commission or an undisclosed tied arrangement. Lenders pay the redress; the complaints window runs until 31 August 2027.