Car Loans. More than one way
to finance a purchase

Summary

Most people spend a lot of time trying to decide what make

and model of car they are going to buy, and then 40% buy a car within half an hour of entering the showroom. (medical insurance) It seems that people spend a lot more time planning, and then jump in feet first.

And do they spend as much time working out how to best finance their new purchase? We dont think thats the case. Approximately half of all cars bought through private means are purchased using a personal loan, but 20% of customers buying new cars from the showroom sign up to the manufacturers finance scheme offered to them at the ( secured loans ) point of sale. On average, the interest rate on a manufacturers scheme is 13.7%, add to that a 10% deposit and payments over three years and thats £1800 more than you needed to spend.

As an example, take the new Renault Megane 1.6, lets say that its on the road cost is £16,000. With the ( home insurance quotes ) average manufacturers finance deal and the deposit, that would end up costing £17,384 over three years. Compare that to the personal loan at 5.5%, which over three years will cost just £15,631 – saving you £1,753. This example proves that it is not a good idea to accept the manufacturers deal without having checked out all the other options.

It wouldnt be fair to say that all manufacturers deals are costly – they do offer some real gems occasionally. But you have to be careful. The model ( life insurance quotations ) that they are referring to in the advert may not be the model that you want to buy. A lot of the deals are only referring to one particular type, and its usually the ones that theyre having trouble selling. You also need to make sure you read the small print, a deal that is currently available with the Volkswagen Polo E2 has a nasty surprise at the end. Paying just 5.8% on interest and a monthly payment of £99 over 35 months, you are faced with a final payment of £3,750 to pay off the whole amount. Otherwise youll have to trade in your E2 for a new VW, and be tied in for another three years, and so on.

The manufacturers deals are designed to maintain your loyalty for the brand – experience has shown that most customers would rather trade in and get another car with them rather than pay out a large chunk at the end. (mortgages)

Theres another way, other than with a personal loan or a manufacturers scheme, to pay for a car – thats with hire purchase.

This is the way it always used to be done – and it involves paying a deposit of probably 10% at the beginning, and then making monthly payments until the car is fully paid off. Its like having a mortgage, in that you do not own the car until you have finished paying for it. If you cant make the repayments, theyll take the car back.

If however you want to sell the car before the HP agreement has reached its end, youll probably have to pay a redemption penalty, again very like a mortgage. This will usually mean paying up to three months interest in order to be released from the contract. The HP company has another way of stopping you from doing this, which is by registering its financial interest in your car with a finance-tracking agency called HPI. It basically means that you wont be allowed to sell your car until the contract ends at its agreed date. (best loan)

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