Wise buys before you drive
THE TIMES - 24TH FEBRUARY 2007
Rebecca O'Connor on the best finance deals for your new car
Drivers keen to go green and save a fortune on fuel by buying a new energy-efficient car could find their cost savings vanishing even before they have left the showroom if they choose the wrong finance.
New vehicle registrations start on March 1, and environmentally friendly hybrid and diesel models are expected to be among the first off the forecourts. But whatever the car, the wrong type of finance deal could leave you thousands of pounds worse off.
Last-minute showroom finance deals are expensive, with average APRs of around 10 per cent. Loan companies that offer deals aimed exclusively at car-buyers also charge high rates. A best-buy personal loan rate arranged before you visit the dealership is a better bet. Despite recent rises in loan rates, there are still a few below 6 per cent available from Alliance & Leicester, Northern Bank and Masterloan. Most personal loan rates are currently hovering at around 8 per cent.
Nick White, of uSwitch.com, the price comparison website, says: "Taking the finance deal offered by the car dealer could turn out to be a long-term financial burden. By organising the loan before visiting the showroom, people will not feel pressurised to get the cash quickly to secure the car of their dreams."
For example, a motorist buying a Ford Focus for £12,995 with a £3,000 deposit using a car showroom deal with an APR of 10.3 per cent would pay £2,698 in interest over five years. Borrowing the money at a personal loan rate of 5.9 per cent would cost £1,538 in interest over the same period, saving £1,600.
Cost savings on personal loans can be wiped out by expensive payment protection insurance policies sold alongside the loan. In response to regulatory crackdowns on the market, the British Insurance Brokers' Association is about to launch a range of new policies through its insurance arm, British Insurance.
These, it claims, will offer better premiums for partial cover for stress, back-related and pre-existing conditions.
Homeowners who need a car loan but are worried about monthly repayments can reduce them by adding the loan to their mortgage. But if you spread the repayments over 25 years, you could end up paying more than double your vehicle's purchase price in interest. Ray Boulger, of John Charcol, the mortgage broker, says: "There is no reason why you cannot add the car loan to the mortgage, but as with any borrowing, the quicker you pay it back, the less it will cost."
The typical length of owning a car before selling it is three years. Bear this in mind when you arrange the repayment period so that you are not paying for the car long after you have sold it.
If you cannot sort out a personal loan before you head to the dealership, all is not lost. A quick trawl of internet price comparison sites for best-buy loan rates could give you a bargaining tool with the salesperson. Do not accept the first rate he or she offers -it is unlikely to be the best, as sales staff make a commission from the finance companies.
A large deposit can also work in your favour when you are negotiating. Some dealers offer 0 per cent finance, but this is usually available only to buyers with a large deposit of 30 or 40 per cent and is for hire purchase, which means that the car belongs to the dealer and you are effectively renting it for a fixed period. Some dealerships, such as Chevrolet, offer 0 per cent if you can pay off large lump sums at intervals instead of making monthly repayments. This allows you to keep the balance in your savings.
Personal contract purchase can also be offered, which makes the car more affordable at the outset by deferring part of the payment until the end. The final amount paid will depend on the predicted depreciation of the vehicle, plus interest. But these deals can result in much higher costs over the term.
Avoiding showrooms altogether can also knock thousands off the cost of the car. A plethora of websites offers discounts off dealer prices for online buyers. A few worth trying include www.drivethedeal.co.uk, www.buyacar.co.uk and www.moneysupermarket.com.
Online brokers act as a kind of introduction service for car dealers around the country. They obtain the discounts by ordering in bulk. Some have special relationships with certain brands or dealers. But because the discounts are specially negotiated, they vary widely.
But despite the potential savings only 3 per cent of us are happy to buy a vehicle online. Richard Mason, of moneysupermarket.com, says: "Drivers prefer to deal face to face and test drive before they commit to purchasing, but the chance to knock so much off the price must make motorists sit up and take notice."
CASE STUDY
Anoushka Lander, was worried about being manipulated into accepting an expensive finance deal from a pushy car-showroom salesman when she bought her Renault Clio, so she arranged a personal loan a couple of weeks in advance.
Ms Lander, a 29-year-old personal assistant from Leicester, says: "I do not trust car dealers and I did not want to be left vulnerable to their tactics."
She took a £5,000 loan from MoneyBack Bank with a rate of 5.7 per cent, which she will repay over three years.
Her monthly repayments are £150.
