|
What's the best way to buy a new car?
By Liam Tarry
For thousands of motorists, a brand new car direct from the showroom floor is the only thing that will do - credit crunch or no credit crunch. With one of the busiest seasons for new car sales upon us, many prospective buyers will be flocking to the forecourts.
Most new cars are sold at franchised dealerships, which means the process of buying a new car is pretty straightforward. In contrast to the downsides of used-car shopping, you choose the car with the specifications you want, and you can be sure that it doesn't have any hidden problems.
Dealerships will also usually take your old car as a part-exchange and offer after-sales service.
Buying a new car isn't entirely without hassle, however. Unless you're lucky enough to have the cash to pay for the car, you'll have to work out the best way to finance your purchase. Dealerships offer a variety of options or you can go it alone and arrange your own finance. Each deal will vary in terms of repayments, overall cost and flexibility, so what's the right road for you to go down?
Paying cash
However, if you have the money upfront, it pays to remember that dealerships make money from selling finance packages. The golden rule for cash buyers therefore is to let the dealer think you're considering finance until you've agreed a price for the car, and then show your hand.
If you don't have the cash - the dealership will come to your aid with a variety of options.
Hire purchase
However, it's important to note that you will not own the car or be able to sell it until all payments are made and, if you do not keep up with payments, the car can be repossessed. There is usually an administration fee with the first payment and an 'option to purchase' fee with the last one, but, with a bit of haggling, you can often get these waived.
Personal contract plan
At the end of the PCP term, you can choose to pay off the remaining value and keep the car, hand it back to the dealer and walk away, or use the car as a deposit on a newer model. But be aware that you'll be charged around 10p for every mile above the annual mileage estimate, and the car has to be in good working order when you return it, because any damage will be charged to you.
"We find our PCP products are popular because at the end of a typical two or three-year repayment term, customers have the flexibility to either return the car, upgrade it, or keep it," says Louise Dawson, marketing manager at BMW Financial Services. "If they chose to part-exchange their car for a new model at the end of the agreement, they can save money on MOT and servicing costs and are less likely to have to make repairs."
Lease purchase
Contract hire
While dealer packages may offer low repayments and a degree of flexibility for those that like to update their car regularly, they can be expensive in the long run. It's important to understand how they work and how much they'll cost you.
The easiest way to compare offers is to ask what the APR on the finance is, or better still, what the total repayments, including any charges, will be.
A canny salesman may boast a lower 'flat rate' but this will apply to the total sum borrowed over the term of the agreement, and won't take into account the fact that the money you owe decreases over time.
It's worth noting that dealers can be flexible, so try to negotiate a lower APR. A percentage point may not seem like much but it could save you hundreds of pounds.
Personal loan
Take the example of a £20,000 loan from Abbey which has a typical rate of 7.9%. Over seven years, repayments would be £308.02 a month and the total cost of borrowing would be £25,873.68. However, payments of £401.97 a month reduce the term to five years, saving £1,755.48 in interest and bringing the total cost to £24,118.20. Cut the term to three years and, while repayments jump to £623.29, you'll see the overall cost fall to £22,438.44. Also, if you opt for a shorter term, you'll benefit from a greater choice of loans and lower rates.
While personal loans are cheap, Samantha Owens, head of cards and personal loans at Moneyfacts, warns that there are factors you'll need to consider.
"Although you will own the car from day one, if you default on the loan repayments, the lender can still seek payment of the outstanding sum and this could possibly result in court proceedings," she explains.
"Most loans over a year will come with a redemption penalty so, if you plan to pay off the loan early, you'll have to pay an additional month's interest on top of the sum borrowed, as well as interest on the outstanding month."
Whatever car you've got your heart set on, it's important to weigh up your options and remember that, however pushy the salesman, you can always make your own arrangements. If you are considering dealer finance, insist on written quotes to take away and think about. The right finance package will depend on how much you're willing to pay each month, how many miles you plan to cover and how much depreciation you can tolerate.
While there's nothing quite like driving a new car off the forecourt, getting the choice of finance wrong could be an accident waiting to happen.
Useful links:
|
Send Article by Email
Send Article by IM
Blog This with Y! 360
Printable View