Financing your car - Make the right choice

The cost of financing your car could increase by 26% just by choosing the wrong loan. So claims money search engine, Moneyfacts.co.uk.

Samantha Owens of Moneyfacts makes the point that with just over a week to go before the new 57 plates hit our roads, many motorists will be searching garages up and down the country for their new cars.

However, before opting for the convenience of forecourt finance, it's worth checking out how this compares with other deals on the market. There are over 50 providers offering a range of unsecured loans and plenty of options available to borrowers. But with such a wide range of choice, comes a wide range of rates and deal types.

Latest Moneyfacts research has shown that on a £5K loan the difference between choosing the best and worst loan deal could cost you an extra £861, while the wrong choice on a £10K loan could see you out of pocket by more than £2.6K; or to put it another way, it increases the cost of financing your car by a massive 26%.

Cheapest offer for a 3-year, 5K deal without insurance, according to Moneyefacts, is Yourpersonalloan.co.uk, which charges £5,486.04 in total. And £152.39 a month.

At the opposite extreme Lloyds TSB charges a total of £5,922.00. And giving a total monthly outlay of £164.50.

With insurance, Leeds BS is the cheapest at £6,258.24 £173.84 p.m. while Britannia BS is the most expensive at £7,120.08 £197.78.

Corresponding figures for 5-year, 10K loans without insurance are: Yourpersonalloan.co.uk £11,634.60 £193.91 and Egg £12,605.40 £210.09.

With insurance, least and most expensive are: Leeds BS £13,476.60 £224.61 and Britannia BS £16,129.20 £268.82.

Before deciding on your car loan consider the following:

1- When shopping around for your new loan, use the total repayment figure to compare deals.

2- Shop around for your loan. And for the best possible package, shop around for your insurance separately.

3- 91% of loan rates are either typical pricing or personal pricing. So don't assume the rate advertised is the rate you'll receive, as this will depend on your credit rating.

4- Don't be fooled by specialist car loan deals. Often the freebies, discounts or perks don't make economic sense if you have to pay a higher interest rate.

The Barclays deal unveiled earlier this week offers an interest rate of 7.4% typical, 1.1% above the best deals in the market. The package includes discounted RAC breakdown cover and a free HPI check, which can make saving of up to £81.45 in year one, plus a maximum 10% discount off Barclays car insurance for online applications.

5- Be realistic about the term of the loan you choose. Cars suffer rapid depreciation, so make sure that you don't find yourself still paying for your car long after it has reached the scrap yard.

6- Be aware of the cost of repayment holidays. For example, if you took out a loan of £10k over five years at 6.5% APR and took a three month repayment holiday at the commencement of the loan, you would pay an additional £124.74 in interest charges.

Moneyextra.com recommends you take independent financial advice before acting on any article

2007-08-23 10:14:35 © Moneyextra.com