Eager new car buyers have only weeks to wait before the new ’57 number plate comes into circulation this September. Over 400,000 people are expected to fork out for a new set of wheels next month alone as people rush to get the newest cars on the road.
But people who are set to splash out are being urged to assess their finance options before rushing into anything. It’s easy to forget about your money options in the rush to buy a new car, but British car buyers could waste millions of pounds by opting for expensive deals.
Most people borrow money to help buy a car, and many car dealers will offer on-the-spot finance deals to customers keen to strike a deal. But analysis from MoneyExpert.com shows there are many ways to borrow money, with some being significantly cheaper than standard finance agreements.
Not driving a hard bargain
Finance deals offered through a car dealership are usually called "Hire Purchase Agreements". A Hire Purchase is where you agree to pay in instalments, but you only own whatever you’re buying once the final instalment has been paid. Until then the company you bought it from technically owns it.
The bottom line is these agreements are usually best avoided because the interest rates are so high. Typically you can expect to pay around 10 per cent, but some dealerships and finance companies will charge more.
The personal loan route
It’s pretty much always the case that car buyers are better to opt for a personal loan. Personal loans can be as cheap as 6.3 per cent which is generally better than the rates offered by dealers.
The table below shows how different interest rates can affect the total amount you will pay for a £7,000 loan repaid over 5 years. Choosing the right deal could mean as much as £1,200 to anyone looking to borrow cash for a car.
|Interest Rate||Monthly repayments||Total Amount Repaid (£7,000 loan)|
Dealerships can sometimes make it hard for customers to make outright comparisons on interest rates, talking instead in terms of monthly repayments. So if you’re in the market for a new car make sure you have an example monthly repayment figure on a personal loan with you when you go to a dealer. This will make it easier to compare a loan with a Hire Purchase Agreement.
Compare Personal Loans now
Independent financial website MoneyExpert.com says there are some key things to consider when getting a personal loan:
- Don’t be hoodwinked by the rates advertised by lenders because not everyone qualifies for them
- If you have a bad credit rating, then lenders will charge you a higher rate
- Try not to waste time applying to lenders unlikely to lend you the cash, either. The more knock-backs you get, the harder it becomes to get a loan
- Use the credit profiling tool [link to MoneyExpert tool] to find the lenders most likely to offer you a loan.
- Watch out for where a provider’s interest rate changes – it can actually be cheaper to borrow an extra £500 to take advantage of a lower interest rate
- Go for the shortest repayment term you can. The less time you have to pay off debt, the less interest you have to pay
Down to the shops
It is essential that you shop around for the best rate, whether you’re borrowing money to finance your new car or if you’re looking for car insurance. Make sure you always get at least three quotes.
Buying online is also a quick way of getting quotes. It can also be cheaper because many insurers offer discounts of 5% or more if you buy online.
Compare Personal Loans now at MoneyExpert