Buying a new or used car

Wednesday 01st Mar, 2023


Buying a new or used car

Buying a car is probably one of the biggest purchases we will ever make.  It’s certainly one of the top reasons why people apply for a Credit Union Loan.  

Whether you’re simply looking to replace an ageing vehicle, upgrade to something roomier for a growing family, or switch to a greener alternative, it pays to think about it carefully and make sure you know about the different ways to pay or spread the cost.

Car Loan


Budget first

Start by reviewing your money situation and work out a budget.  This will help you decide how much you can put towards buying a car; whether it will be new or used; and, importantly, how you’ll manage the ongoing running costs such as car tax, insurance, servicing and repairs.  A new car may come with a special warranty or servicing deal and you won’t have to worry about an MOT for a few years.  A used car costs less, but do check out its condition and its history.

When budgeting, be realistic.  Over-extending yourself could bring problems later on if your income drops or you have little put away in savings.

If part-exchanging your existing car, make sure you know what it’s worth.  You can get quick free valuations easily online, or a more detailed valuation if you pay a fee.

Cars lose value every year through depreciation.  Bear this in mind, especially if you take a loan over several years.  You may find when you come to sell it, you owe more than you can get for it.


Knowing your options

Personal Contract Payment (PCP) – This option is frequently offered by car dealers, and can be quite complex so it’s important to understand what you are signing up for.  As with other finance options, you’ll make a monthly payment. These repayments are usually lower than with Hire Purchase (they are based on forecasted annual mileage and the predicted value of the vehicle), but the total amount of money you’ll pay back is often higher.

Basically you are renting the car for a 3 or 4 year period and won’t own it unless you choose to make an additional one-off payment (called a balloon payment) at the end of the contract.

At the end you can:

  • hand the car back. You’ll have to pay any charges due (for example, for excessive wear and tear or going over the forecasted mileage);
  • use the resale value to take out a PCP on a newer model; or
  • pay the resale value (balloon payment) and keep it. This may be a few hundred or a few thousand pounds. If you haven’t got this money saved, you might have to take out another loan to pay it off.

If you want to end the deal early or cancel it, you must have paid half the value of the vehicle.

Hire Purchase (HP) – This is buying a car on finance, with the loan secured against the car.  You’ll have to pay an upfront deposit of around 10% of the car’s value then make fixed monthly payments (with interest) over an agreed period.  However, you won’t own the car until the last payment has been made.  If you miss payments, you could lose the car.

Hire purchase can be quite competitive for new cars, but less so for used ones.

When you’ve paid a third of the total owed, your lender can’t repossess your car without a court order.  And, after paying off half the cost, you may be able to return it without making any more payments – if your contract says so.

Personal Loan – Other than paying with cash, this is probably the most flexible way to finance a car purchase.  This is because:

  • You own the car outright from the start of the loan so can sell or modify it;
  • The loan doesn’t have to cover the whole cost of the car (if you want to part-fund from savings for example);
  • Repayment terms may be spread affordably over several years;
  • There’s a wide range of potential lenders, including your not-for-profit Credit Union, so you can shop around for a competitive fixed rate (%APR);
  • As far as your dealer is concerned, you’re a cash buyer so this may strengthen your hand when haggling a price, especially on a used vehicle; and
  • There are no restrictions on using the car, and no extra payments for wear and tear or excess mileage.

Saving up – Although not possible for everyone, this is the cheapest and simplest way.  You’ll have all the advantages of outright ownership, without the worry of monthly payments, finance terms and conditions, or owing more than the car is worth.  However, your vehicle choice may be limited by the size of your savings pot.  Also, it’s worth paying some of the cost on your credit card to benefit from credit card purchase protection as the card company and retailer are jointly liable if something goes wrong (it can be paid off in full the next month). 

If you can’t fund the whole purchase with cash, using your savings to put down as big a deposit as you can may help you to get good finance terms.


HEY Credit Union – here to help

We aim to make car finance as simple as possible for our members.  If a Personal Loan is your preference, please give us the chance to quote.  We may be able to save you some money and you’ll be looked after by a fair and responsible, award-winning not-for-profit lender that is always on your side. 

You can apply online or in branch and every application is assessed by a trained human underwriter.  Once we have all the information needed, our friendly team will aim to get you a speedy decision so that you’ll be in the best possible position to secure the vehicle of your choice. 

Car Loan


Finally, here’s some handy tips from Money Helper on how to negotiate with your dealer to get the best price on a new or used car.

This article is for general information only and does not constitute financial, legal, or any other form of advice.



Last updated 24.2.23

Share This Story

Next Post: When someone dies
© Hull & East Yorkshire Credit Union | Registered under the Credit Union Act 1979 and the Co-operative and Community Benefit Societies Act 2014. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Our FRN is 213620.