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Car finance: how to get a new car for used money

  • Shop around to find great value new car PCP finance
  • Used car PCP finance can feature high interest charges
  • New car deals can include deposit contribution discounts

UK drivers financed around 50% more used cars than new cars in 2018 and with new car finance costs rising rapidly for many models, it’s easy to understand why. Used car finance is often awful value, though, with drivers who take dealer finance on a secondhand car risking paying through the nose due to often extremely high interest charges.

In fact, used car finance can be so expensive that it’s common for two-, three- or even four-year old cars to cost more per month than a brand new equivalent – all with identical contract terms.

Don’t believe us? A brand new BMW M140i Shadow Edition 5dr comes in at £343 per month – not much for a near-£38,000 car – thanks to a huge £7,174 deposit contribution discount (on a 48-month contract with a £5,000 deposit and 10,000-mile-per-year allowance).*

Car showroom

Meanwhile, an 18-month old equivalent that has covered nearly 11,000 miles would set you back £400 per month from a BMW dealer, despite its far lower £26,490 cash price (with identical contract terms). Keep reading to find out how to make your money go further.*

Hunting for a new car? Check out the best leasing deals available now with Parkers leasing search tool and have a look at the best PCP finance deals, whatever your budget:

How to finance a new BMW 1 Series for less than an 18-month old version

Study those numbers and you’ll see that the used BMW M140i would set you back an enormous £2,716 more over four years if you handed the keys back at the end of the contract – as most drivers do. AND you’re likely to have to dig further into your wallet for servicing, tyres, brakes and other parts than with the brand new car.

Explaining the stark difference, the new car comes with a gigantic finance discount and relatively low 4.9% APR, while the used model has no finance discount and very steep 12.4% interest charges.

BMW M140i finance

That means a driver who went on to make the optional final payment to buy the new car would have paid far less than the list price – with the deposit contribution discount effectively outweighing all the interest and chipping a further £3,416 off the list price – while someone going on to buy the used car would have paid £7,646 in interest.

So, as a result, despite that £11,295 cash price difference, you’d pay practically the same in total to buy the new car at the end of the finance compared with the used model. Figures like this show why you shouldn’t pay too much attention to cash prices if you’re planning to PCP a car – whether you want to hand the car back or buy it.

BMW 1-Series: used car finance vs new car finance

If you’re planning to finance your next car then make sure you get like-for-like finance quotes to ensure you’re getting the best car for your budget, rather than focusing on cash prices, which often have very little relation to your monthly payments.

BMW M140i

Even a £23,995 two-year old BMW M140i that has covered 24,000 miles would cost £23 per month more than the £37,785 new M140i in higher-spec Shadow Edition form above. So don’t let the dealer push you towards certain cars based upon their cash prices when other models could cost you less per month.

It may take a little time, but getting a couple of finance quotes for the main type of car you’re considering – plus a few quotes for rivals models to see whether any are far better value to finance – could make the difference between driving a well-used 2017 model and getting behind the wheel of a brand new higher-spec version.

Shop around as used car finance costs vary twice as much as cash prices

Finance costs on used cars vary far more than the cash prices, too. This means that if you shortlist used cars based upon their cash prices you could unwittingly end up spending far more on finance costs than you need to, because a car with a higher cash price could end up costing much less per month (with the same contract terms).

BMW M140i Championship Edition

For the last few months we’ve been running a BMW M140i Championship Edition – a one-of-30 limited edition model with a fixed specification, all built at the same time. With no options or colours to separate these cars, the only difference is their mileage, making cash and finance costs easy to compare.

Seven Championship Edition models were available through BMW’s dealers when we looked, with cash prices ranging from £30,517 to £35,000, though finance costs varied more dramatically from £441 to £573 per month (like-for-like contract terms). So despite cash prices varying by 15%, monthly payments varied by twice that amount at 30%.

Approved used BMW M140i Championship Editions for sale (monthly figures for PCP finance, 48-month contract, £5,000 deposit, 10,000 miles per year):

  • £30,517 - £464/month: 18-plate, 19 miles [now sold]
  • £31,000 - £477/month: 18-plate, 105 miles [now sold]
  • £31,011 - £441/month: 68-plate, 2,300 miles [since reduced to £30,960 and then £30,660]
  • £32,490 - £517/month: 18-plate, 24 miles [now sold]
  • £32,988 - £454/month: 68-plate, 2,600 miles [since reduced to £31,988]
  • £32,990 - £484/month: 68-plate, 111 miles [now sold]
  • £35,000 - £573/month: 68-plate, 300 miles [since reduced to £33,500]

Blame interest charges for this difference, with dealers charging everything from 5.9% to 12.4%. Even an APR difference of less than 5% might sound insignificant in the big scheme of things, but could still add more than £80 per month and around £4,000 over four years if you plan to hand the car back, potentially even more if you go on to buy it outright.

Haggling tips: how to get the best deal on used car finance

Shopping for a used car? If you’re after the absolute best deal, it’s important to push for the best cash price as well as haggling on the finance terms, since both affect how much you pay every month.

The lower the cash price, the less – in theory – you should pay per month, but a low cash price is no good if you’re paying inflated interest charges. So that means that once you’ve haggled on the cash price it’s worth pushing for the lowest APR charge possible. With new car finance the interest rate is normally fixed, but with used car finance, you should be able to persuade the dealer to lower the APR, especially if it’s in double figures.

Car finance haggling

One of the BMW dealers we spoke to, which was already offering lower interest than the other dealers – at 7.9% compared with 9.9% or more typically 12.4% APR – very quickly slashed that to just 5.9% when we suggested that the monthly payments were over our budget. This instantly cut £41 per month from the bill without us even trying. So it's well worth haggling.

Haggling tips: how to get the best new car finance deal

As with used cars, the first step to get a good new car finance deal is to push for the lowest possible cash price. Once you’ve done that, ask whether any deposit contribution finance discount is available, as this can dramatically cut the monthly payments and make manufacturer finance far better value than sorting out the finance elsewhere.

If the dealer isn’t moving much on the price, try getting them to throw in extras that you want for free or get a service plan bundled in. Make sure you know how much these individual extras are worth if you do get anything thrown in, so you gauge how much value these additions offer.

Haggling on car finance

Opting for a car that’s in stock could also help you get a better deal, as it could mean a quicker, easier transaction for the dealer and they might be willing to give you a larger discount than normal. Meanwhile, if the car you want isn’t in stock, or you’re not getting far with your local dealer, it’s worth seeing what deals you can get from other dealers.

For more information about how to get the car you want for the monthly payment you want, check out the Parkers guide to how to get the best new car finance deal.

*Deals are correct at time of publication. Everyone’s financial circumstances are different and credit is not always available – Parkers cannot recommend a deal for you specifically. These deals are indicative examples of some packages available this week. Bauer Consumer Media Limited is an appointed representative of ZenAuto Limited for the broking of regulated hire agreements. ZenAuto Limited is authorised and regulated by the Financial Conduct Authority. ZenAuto Limited's registered office is Number One, Great Exhibition Way, Kirkstall Forge, Leeds LS5 3BF. ZenAuto Limited's company registration number is 10967345. ZenAuto is the trading name of ZenAuto Limited. Terms, conditions and exclusions apply.