posted 9 years ago

Research both the car & the finance

Drive away with the best car finance deal

The new "57" registration plate is with us and showrooms are buzzing with new car hunters. But while they may have thought carefully about make and model, they could pay through the nose if they haven't done their financial homework as well.

While a fifth of car-hunters spend more than 20 hours flicking through car magazines and viewing cars before choosing a make and model, a quarter would spend less than an hour -- if any time at all -- researching how to pay for it, according to research by insurer esure.

More than 40 percent of 1,000 people surveyed say they would not find out a car's insurance group before signing on the dotted line and 35 percent would not think to get an insurance quote to gauge the cost and whether they are insurable. Meanwhile, 11 percent say they would not haggle over the actual purchase price.

Colin Batabyal, underwriting director at esure, says: "As a nation we're always out for a bargain and value for money, yet motorists aren't putting this into practice when it comes to buying a new car."

"Being shrewd and shopping around for the best price, finance and insurance deals could slash hundreds, if not thousands, off the cost of driving away in a new '57' plate."

Buying a car remains the second largest purchase most people will make -- behind a house -- and most drivers have to borrow to meet the cost.

There are various means of funding the purchase -- from dealer credit and 0 percent finance to loans and hire purchase. The cheapest option is, clearly, interest-free credit. But obtaining this and a discount on the price can prove tricky. Such offers often come with stringent conditions too: many require a hefty deposit and the loan might have to be repaid over a short period.

Drivers unable to meet minimum deposits could part-exchange old vehicles to help bridge the gap. If you still have insufficient funds, you could consider taking out a competitive unsecured personal loan to fund the up-front cost.

Personal loans allow drivers to become "cash" buyers -- owning their new set of wheels from the outset. Despite rising interest rates, the market for personal loan business remains competitive. Rates of little over the base rate (currently 5.75 percent) are achievable.

Best buys, according to price comparison service Moneyfacts.co.uk, including Moneyback Bank at 6.3 percent and Masterloan and Sainsbury's Bank at 6.5 percent.

Be aware, though, that achieving headline rates on low-cost personal loans will depend on your credit rating.

Watch out, too, for costly payment protection insurance. It is meant to cover debt repayments in the event of illness or unemployment, but the sector has been criticised as over-priced and subject to high-pressured sales tactics. Sourcing this cover from independent companies, such as British Insurance and Paymentcare, can cut costs.

Extending your mortgage is another cheap means to finance a car purchase. The interest rate might be low, but you might end up spending the next 15 or 25 years paying for a car that will, in all likelihood, have long been consigned to the scrap-heap. The length of repayment will mean you will pay more in interest in the long-run, so this option is generally not worth considering unless you are already planning to re-mortgage.

"Forecourt finance" is also an avenue worth considering. Interest rates here have historically been high, but have been falling of late, as competition with high street lenders intensifies. Opt for this and the dealer might knock more off the purchase price or give you more for your trade-in -- so ask them to quote their best deal.

Hire purchase, the traditional way of buying a new or used car, and personal contract purchase are other options. Some dealers might offer a better deal on HP; on this, they will earn commission. Minimum deposits are generally 10 percent of the purchase price and rates tend to be competitive with personal loans. On the minus side, you will not own the vehicle until you have made the final payment -- payment terms are usually 12 to 60 months -- and cannot sell it before then. And, if you default on the loan, you could lose the car.

Personal contract purchase (PCP), meanwhile, can prove optimal for those who are unable to put down much of a deposit and cannot afford high monthly loan repayments, as well as those who change vehicle often. With this, you put down a deposit -- as little as the first monthly repayment -- and agree to pay a set number of instalments, typically for 12 to 36 months.

The repayments are generally lower than with hire purchase, and at the end of the agreed period you have three choices: settle the account with a final payment and keep the car, hand it back (provided you have kept within mileage limits and the car is in good condition) or part exchange it for a new vehicle and sign another contract.

You are, however, likely to end up paying more than with other types of finance, and there is a danger of winding up with negative equity if used car prices plummet.