Buying a new car next month?

Financing a set of wheels without being taken for an expensive ride should be the objective of any driver planning a new car purchase next month.

Yet too many, having spent days, perhaps weeks, researching and agonising over the choice of model, will then sign up to the first financing scheme offered.

This is invariably a bad move. Recently published data suggests that opting for a low rate personal loan rather than a traditional car finance deal could save the motorist as much as £1,100 in unnecessary interest payments.

If the expected number of new cars sold next month matches the level achieved in March 2007 and if 50% of purchases (224,644) are achieved through dealer financing (as they were in 2006) then it has been calculated that UK motorists are about to waste almost £174 million.

This is because the average saving is some £733 on a competitive personal loan when compared to a typical car finance deal.

Looking to borrow money? Check out the most competitive unsecured loans around right here.

Burn rubber not money

Buying a new car involves a combination of shopping around and haggling, being ever mindful that the best price deal doesn't automatically bring with it the best financing deal.

The showroom might offer you an unbeatable price, but remember that, on average, showroom interest rates work out around one third higher than those quoted for personal loans from high street banks and building societies.

Would it be best to shun the showroom anyway?

You could make significant savings by buying your new vehicle online, benefiting from the major discounts negotiated by providers on the standard list prices of new cars from leading manufacturers.

Online you will also find some of the most competitive personal loan rates, for instance 6.9% (Alliance & Leicester) and 6.8% (Tesco) both for loans of £10,000 over three years. Compare these with showroom rates for car loans which can be as high as 11.8% APR.

Looking for car loans? Check out your car finance options. Get a car loan now.

If you don't purchase online (and research indicates only 3% of motorists choose to buy cars this way - the rest of us seemingly obsessed with the tactility of shiny flesh before handing over our cash) then at least do your research online; you want the best model price and the best loan deal.

Websites such as What Car? can find, anywhere in the country, the lowest price at which your chosen car is being marketed.

You can discover what special deals and promotions are being offered by dealerships and manufacturers and ascertain the likely discount for trading-in your old car.

Armed with this knowledge you are now in a position to strike a hard bargain with our local dealer. Throw in some scintillating dialogue along the lines of "love to buy it but the wife/husband will go ballistic if I pay this amount", and you could make savings of £1,500 or more.

Cash to bargain with

If you already have a personal loan agreed in principle, accurate comparisons with the finance deal offered by the showroom will be easier and you might find yourself in a stronger bargaining position on price. Better still if you actually have the loan in place and can, effectively, wave folding green in the face of the salesperson. You're a cash buyer.

Personal loans can be flexible in the amount borrowed and length of the repayment term; just remember that borrowing over a longer period to minimise the monthly repayment will significantly increase the cost of the loan and the total amount paid in interest.

Want the personal loan that is right for you? Use Moneyextra's comparison service to help

Some personal loan providers structure their deals so that lower interest rates apply once a certain loan threshold is exceeded; annual percentage rates can drop to around 7% for loans above £5,000.

21 February 2008 © Moneyextra.com

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