Matthew Wall, Tuesday February 12, 2008
More than 400,000 new cars are expected to be sold this month as the new 08 number plates hit UK showrooms - but many drivers could end up paying far more than they need to. We show you how to save a cool £1,000 on your new car
Unwary drivers are set to collectively waste a massive £174m next month by choosing the wrong car finance options, according to a new survey from price comparison website uSwitch.com.
More than half of the 400,000 cars expected to leave showrooms next month will be bought using through dealership finance packages - one of the most expensive ways you can buy a new car, claims uSwitch.
The average rate of interest on a dealership credit deal is 9.88% APR - that's some three percentage points higher than the best unsecured personal loans on the market. The most expensive deals come with APRs of 12% or more - and paying these higher rates can add more than £1,000 to the overall cost of your new car.
A car is the second-largest purchase a person will make after buying a house - and with fuel, food and household energy bills all rising, consumers are set to revise their budgets this spring. Research from AA Personal Loans shows that just six months ago buyers planned to spend an average of £9,827 on their car - now the figure as fallen to just £8,851.
Yet you can still make a four-figure saving on your new car - we show you how.
Steps to save
Think about how you're going to pay for your new motor before you even arrive at the car dealership. With your finance in place, you'll be treated as a "cash buyer" - and you'll be in a strong position to negotiate a discount.
If a dealer works out that you haven't sorted out the finance yet, you're more likely to succumb to his sales patter and sign a finance agreement without looking at the small print.
The cheapest way to buy is to pay by cash from your own savings, which means you don't borrow anything and don't pay any interest. Similarly, a 0% finance deal is also worth investigating, although you're likely to have to put down a hefty deposit. It can pay to put down as big a deposit as you can in any circumstance - it usually helps reduce the overall borrowing costs.
An unsecured personal loan will be the cheapest way to fund the balance. Despite the credit crunch some lenders are still offering rates as low as 6.5% APR. A £10,000 loan repayable over three years at 6.5% APR will cost you £305.64 a month with Sainsbury's Bank, for example. The total credit charge for the period will be £1,003.
Spreading this loan over five years would reduce the monthly repayments to £194.79, but increase the total credit charge to £1,688 - but it might be worth paying a bit more over the long-term to reduce the pressure on your finances each month.
Search the cheapest loan deals
Alternative options
One great way of squeezing the best price from dealers is to have them compete against each other via a reverse auction website like Autoebid. You agree to buy the car at Autoebid's target price then let dealers bid the price down to win your business. The final price could be thousands of pounds lower than the target price, plus Autoebid's £400 commission. And if the target price isn't reduced, there's no fee to pay.
Of course, one of the best ways of saving money on a new car is to buy a nearly-new one instead. With some brand new cars depreciating by more than 50% in the first year, it seems crazy to splash out on a freshly-minted marquee - especially when manufacturers are increasingly offering three-year warranties as standard.
Savvier car buyers have certainly got the message, with around 45% of those consumers now buying second-hand cars less than three-years-old.
For all your other motoring needs, head to the Sky Motoring website
