Check out all finance options before you go car shopping on the forecourt
SCOTTISH DAILY RECORD - 13TH SEPTEMBER 2007
Nearly eight million Britons plan to buy a car in the next six months - and September is one of the busiest months on the forecourts.
Between them, says Sainsbury's Bank, they will spend nearly £59billion. That's an average of almost £7500 each, but many purchasers will add thousands to the price by making the wrong choice of finance.
So, whether you're hoping to grab a new 57 registration motor or a second-hand model, take a little time to think about how you'll pay for it.
The cheapest option is to use savings, but this isn't always possible. Around a quarter of purchasers will go for forecourt finance, while a third will take out a personal loan.
But finance packages vary enormously, so it's essential to shop around rather than just sign up for whatever your dealer or bank offers.
Samantha Owens, head of personal finance at money search engine Moneyfacts.co.uk, says: "Before opting for the convenience of forecourt finance, it's worth checking out how this compares with other deals on the market. There are more than 50 providers offering a range of unsecured loans and plenty of options available to borrowers.
"On a £5000 loan, the difference between choosing the best and worst loan deal could cost you an extra £861, while the wrong choice on a £10,000 loan could see you out of pocket by more than £2600."
Some dealers offer interest-free credit and, provided you check every word of the small print so you know exactly what you're getting into, this can be great value.
But, according to personal finance switching site uSwitch.com, the average annual interest rate on dealer finance packages is 10.76 percent and many charge far more. Meanwhile, unsecured personal loans are available from 6.3 per cent. There's a catch though - two, in fact.
Lenders boost their profits massively by flogging borrowers expensive and often useless loan protection cover, and it may not be until you check your terms and conditions that you realise you've been signed up for this.
If you really want cover, independent providers such as Paymentcare.co.uk and BritishInsurance.com charge a fraction of lenders' prices.
The second catch is that, although market-leading personal loan rates are good, only those with the best credit ratings get them. Everyone else will either be refused or offered a higher rate.
This is called "pricing for risk" and Nationwide and the Post Office are among the few lenders that don't do it. Nationwide charges everyone it accepts 8.9 per cent to borrow £5000 to £7499. The Post Office rate is 7.9 per cent for £2000 and above.
With other lenders, to get their cheapest rate, you need a clean financial history. Lenders also like you to be on the voters' roll, in steady, reasonably paid employment, to be a home owner and have lived at the same address for a while.
