Car Loans Shop around for the cheapest deal

The majority of people put a lot of time and effort into deciding which car to buy, and what colour they would like etc, but when it comes to the crunch and they get to the showroom, 40 walk out just half an hour later having bought a new car. 20 of the people that buy a new car in the showroom, opt for the manufacturer’s scheme. As we go on to discuss later in this article, these deals often do not make the most financial sense. It seems that people spend weeks planning the purchase, but they don’t think hard enough about how best to finance the purchase! 50 of people that buy their card privately, i.e. not from a trader, take out a personal loan to finance the purchase. It’s the ones that go to a trader that often fall for the finance deals on offer, and no wonder, with the hard sales tactics usually employed at these establishments. The basic facts speak for themselves, manufacturers’ schemes have an average interest rate of 13.7, whereas the average personal loan rate is only 5.5 - anyone can see that one is a far better deal than the other – and that’s why doing your homework is so important. The new Renault Megane 1.6 costs, at a rough estimate, around £16k on the road. If bought on a manufacturer’s finance deal, the customer will pay £17,384 over three years, taking into account the deposit and the average interest rate. The same purchase with a personal loan at 5.5, and the customer pays £15,631 –a whopping £1,753 saving. Not all manufacturer’s deals are expensive – occasionally they really come up trumps, but in general, they can’t be depended on to offer you the best deal. The deals are usually tied to a very specific model, all too often customers are drawn into the dealership looking for the deal, only to fall in love with another model which the deal does not apply to. The deals quite often look a lot better than they are too. You could get a Volkswagen Polo E2 for just £99 a month, very affordable with an interest rate of 5.8, but if you want to keep the car at the end of the three years then you’ll have to pay £3,750. If you can’t pay, or don’t want to, then you’ll have to trade in for a newer model, and be tied in for another three years on a similar deal. These manufacturer’s deals work because most people don’t want to pay up when the time comes, and choose to carry on with the next finance deal. It’s brand loyalty that the manufacturer wants and gets, but not always for the right reasons. Another option that has traditionally been popular is the hire purchase scheme.Hire purchase means paying a deposit of around 10 at the outset, then paying equal payments for a set amount of years until you have paid the debt off. It’s just like having a mortgage in that you don’t own the vehicle until the full amount has been paid, and if you want to pay off early, then they’ll penalise you with extra interest charges (usually three months worth). They also have another trick up their sleeve, where if you decide you want to finish the agreement and sell early, they’ll register their interest with a finance-tracking company called HPI which effectively removes your ability to sell the car before the end of the original contract. Personal Contract Purchase (PCP) is a close relative to hire purchase, but has steadily been overtaking in popularity in recent years. The agreement is more flexible, you can pick and choose the time period you want to pay back over, and how much deposit you can afford. The way it works is that at the outset, you say how many miles you think you will be covering over the time that you own the car. You then pay your deposit, and monthly payments for the term, leaving an amount to pay off at the end, called the ‘deferred balance’. Interest rates are around 12.8, generally lower than the manufacturer’s schemes, but a lot more than a personal loan.You have a few options when the contract ends:§Pay the outstanding balance and keep the vehicle.§Trade the car in and use the profit to put towards another purchase. ·End the agreement and give the car back, no need to pay the outstanding balance. You will only be able to trade the car in if it is good condition, and the mileage has not exceeded what you agreed at the outset. You can still trade it in if you have exceeded the mileage, but you will have to pay an excess mileage fee, and depending on how many miles you went over by, it could end up being quite expensive. So there are advantages and disadvantages to PCP, yes it is flexible and you can sell your car back at the end without having to take excessive depreciation in value into account. But if you have a few scrapes and scratches and you’ve done a lot more miles than you intended, you won’t be able to get the best out of the trade-in offer. Car dealers make a good living from selling various finance deals to customers. They also make the deals sound more attractive by adding incentives like cheaper insurance, or by knocking some more money off the purchase price. We say, check that the deal compares favourably to a personal loan. Even with all the incentives, you may still find that the dealer’s finance schemes just don’t add up.

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