How to finance a new set of wheels

The start of the new year is set to trigger a surge in car sales, according to new figures which show two fifths (*) of drivers are going to buy – or are considering buying – a new or used set of wheels in 2010.

While new car sales have recently seen a boost – driven in part by the Government’s “cash for bangers” scrappage scheme which offers a £2,000 discount on a new car – the majority of motorists are still looking to go down the second-hand route.

But irrespective of whether you go for new or used, it’s crucial to get a good finance deal to avoid being taken for a ride.

Make use of cash savings

If you’ve got significant savings squirreled away, you may be in the enviable position of having enough money to buy the car outright.

But if a cash purchase isn’t possible, you could consider a dealer offering interest-free credit; to qualify, you’ll need a good credit record, a substantial deposit and to be able to make large monthly repayments.

Think before signing up to showroom finance

If interest-free credit isn’t possible, don’t sign up for the first loan deal you are offered by the car dealer, or you could end up paying over the odds.

There are different types of package available: with hire purchase (HP), you put down a smaller deposit than for interest-free finance, and then make monthly payments of capital and interest over, say, three or five years – then the car is yours.

With personal contract purchase (PCP) the initial costs are lower, but when the payments end, you must hand back the car – or the lump sum.

Interest rates on showroom finance are typically higher than on personal loans, but the finance is much easier to get.

They key is to arm yourself with information about what sort of packages and rates are available from other lenders before you go into the dealership.

Pick up a personal loan

Personal loans offer flexibility to car buyers, and the best way to get a good deal is by shopping around.

Despite the fact that many lenders have hiked up the rates on their personal loans and are reserving their best rates for those with the cleanest credit records, there are still some competitive rates on offer to those who qualify.

Existing Nationwide building society customers can currently benefit from their lender’s market-leading rate of 7.6 per cent, while Sainsbury’s has reduced its rate for Sainsbury’s shoppers to 7.9 per cent, and Tesco is offering 8.4 per cent.

Hone your haggling skills

Few of us like the idea of haggling, but with discounts of up to 50 per cent (**) up for grabs on the list price, it’s one of the best ways to avoid paying over the odds.

In fact, with figures suggesting the average discount you should be aiming for on a brand new car is around £1,893 (***) – don’t be afraid of driving a hard bargain.

Do as much research as you can before you get to the showroom, so you know exactly how much discount to aim for – and try and get extras thrown in.

Cut the cost of filling up your tank

With the cost of petrol already climbing, and with fuel duty set to rise by 1p per litre on 1 April, it’s important to find ways to beat the prices hikes:

* Increase fuel efficiency by regularly checking your tyre pressure, lowering your speed, and avoiding heavy braking.
* Shop around for the lowest petrol prices in your area at www.petrolprices.com and make use of the new PetrolPricesPro Iphone App
* Use supermarket vouchers and reward cards

Drive down motoring costs

Other ways in which you can contain escalating motor costs include:

* Downgrading to a smaller car
* Joining a car club such as www.streetcar.co.uk
* Setting up a car-sharing scheme with people in your area; also try www.liftshare.com

Put the brakes on rising costs

Over the past decade, the cost of insuring, servicing, taxing and buying fuel for a car has rocketed, but the good news is, drivers can save a packet by making just a few smart manoeuvres.

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