What Used Car Loan Finance Rates Should I Expect?

Lots of people buy a used vehicle with car finance, because it allows you to spread the cost and avoid making a significant outlay all in one go. 

And while car finance is a great way to purchase a used set of wheels, you'll probably want to know about the rates and what you can expect to pay. 

The good news is that we've got the answers here with this guide to used car loan finance rates. 

What Influences Car Finance Interest Rates?

There's no one set thing that impacts car finance interest rates.

Like many other aspects of finance, it usually depends on multiple factors, such as:

  • Market conditions. Economic factors like the Bank of England's base rate influence car loan interest rates. When the base rate is low, borrowing costs for lenders are lower, and those savings can be passed on to you.
  • Credit score. Your credit score is the most significant factor in what you'll pay. A higher score usually means lower interest rates. Lenders use it to gauge how risky it is to lend to you.
  • Loan term. The length of your loan can also affect your rate. Shorter terms often have lower interest rates but higher monthly payments. Longer terms can mean lower monthly payments but at the cost of a higher overall interest rate.
  • Type of car. New cars generally have lower interest rates compared to used cars. Lenders view newer cars as less risky in terms of resale value.
  • Deposit amount. The more you can put down upfront, the less risk the lender takes, which could result in a lower interest rate for you.
  • Lender policies. Different lenders have different criteria and risk appetites. Shopping around can help you find the best rate for your circumstances.
  • Special promotions. Dealerships or lenders sometimes offer promotional interest rates, especially during holiday seasons or to clear out older stock.

Understanding these factors can help you secure a more favourable interest rate, saving you money in the long run.

Factors Affecting Used Car Loan Interest Rates

When it comes to used car loan interest rates, many of the factors affecting how much you'll pay are the same. 

It's worth taking note, however, that used cars tend to command slightly higher interest rates than newer vehicles. 

That doesn't mean you can't find a good deal. But it's worth bearing in mind, along with other aspects like your credit history and the type of used car you want to buy. 

There's a big difference between buying a used Mercedes Coupe that's only a couple of years old and a 10-year-old Vauxhall Astra. 

The mileage also comes into play, as cars with more mileage tend to cost less, and the interest rate may also be lower. 

Other than that, you'll need to keep the usual factors in mind. 

That includes the length of the loan, the lender's specific interest rate and your credit history. 

How to Secure the Best Used Car Loan Deal

Navigating the used car loan market is much easier when you know how to secure the best-used car finance loan deals. 

Here's a guide to help you find the most favourable used car loan.

Do Your Research

Start by researching various lenders and their interest rates. 

Compare banks and online lenders to get a sense of the market rates. 

Don't forget to check customer reviews to gauge the reliability of the lender.

Check Your Credit Score

Your credit score plays a central role in the interest rate you'll receive. 

Make sure to check your credit report for any errors and take steps to improve your score if needed.

Negotiate the Price

Before even discussing loans, negotiate the price of the car with the dealer. 

A lower purchase price will result in a smaller loan amount, which can make the loan more manageable.

Shop Around for Rates

Don't settle for the first loan offer you receive. 

Shop around and get quotes from multiple lenders. Some lenders even allow you to calculate your budget\ and pre-qualify, giving you a better idea of what rate you might receive.

Read the Fine Print

Always read the loan agreement carefully.

 Look for any hidden fees, penalties, or clauses that could affect you in the long run.

Pay a Higher Deposit

The larger the deposit, the smaller the loan amount will be. 

This is especially true for hire purchase used car finance, and personal contract purchase agreements.

Doing so can result in a lower interest rate and less financial strain in the future.

Check the APR

The annual percentage rate (APR) is an indicator of the total loan amount, including any additional fees. Checking the APR can be helpful as it lets you know exactly how much you'll pay over the duration of the loan and not just the interest. 

Following these steps will help you be better equipped to secure the best-used car loan deal, saving you both time and money.

Average Used Car Finance Rates 2023

Based on available data, finding the average car finance rate in 2023 is tricky. 

However, Autotrader mentions that the average annual rate for new car loans has shot up to 8.4% as of June 2023. 

A look back at 2022 can also provide more information. Based on average credit scores, the rates were:

  • 300 to 500 credit score: 20.99%
  • 501 to 600: 17.29%
  • 601 to 660: 10.48%
  • 661 to 780: 5.58%
  • 781 to 850: 3.71%

Remember, these rates can fluctuate due to various factors like inflation and changes in the Bank of England's rates. 

You should always do the research to find the best available rates for car finance

Tips to Get the Lowest Used Car Loan Finance Rates

Check Your Credit Score

Your credit score is the first thing lenders look at. 

A higher score can get you a lower interest rate. Make sure to check for any errors and correct them before applying.

Shop Around

Don't settle for the first offer you get. 

Compare rates from different lenders, including banks, credit unions, and online platforms. 

This will give you a better understanding of what you can realistically expect.

Consider a Guarantor

If your credit score isn't great, consider getting a co-signer with a better credit history. 

This can significantly lower your interest rate.

Get More Car Finance Advice With These Handy Guides

Does PayPal Credit Affect My Credit Score?

Top Tips for First-Time Car Buyers

Where Can I Get a Car Loan in the UK?


How to Calculate the Cost of Car Finance?

To calculate the cost of car finance, you'll need to consider the loan amount, interest rate, and loan term. You can use an online car loan calculator to get an estimate. Just input these variables, and the calculator will show you your monthly payments and the total cost of the loan.

What’s the Best Way to Finance a Used Car?

The best way to finance a used car depends on your financial situation. Options include bank loans, credit unions, and dealer financing. It's advisable to shop around and compare rates from different lenders to find the best deal for you.

Are used car finance rates different from new car rates?

Yes, used car finance rates are generally higher than new car rates. This is because used cars are considered riskier assets for lenders.

What are typical interest rates for used car loans in the UK?

Interest rates can vary widely, but rates are typically higher in 2023 due to inflation.