Paying For Your New Car
Brits enjoy the feeling of driving a brand new car off the forecourt, but it is best not to be saddled with more debt than necessary as you take your shiny new set of wheels onto the road. The sad fact is that the most popular cars lose around 42% of their value in the first year, and the single most popular, the Ford Focus Style 1.8, costs £14,622 new, but is worth only £7,536 twelve months later.
If you’re paying for car using credit then, with that type of loss of value, you want the best deal possible. A showroom finance deal is not likely to be the best bet. The average car showroom finance deal charges interest at 10.76% APR, which is as much as 4.5% higher than the best unsecured loans you might find elsewhere.
Perrys is one of the largest car dealerships in the country, and if you borrowed £6,995 towards the cost of a £7,995 Ford Fiesta, you would have to pay interest at 12%, amounting to £2,282 over five years.
A preferable deal could be found at MoneyBack Bank, at 6.3%, meaning an interest payment of just £1,150 – and an excellent saving of £1,313.
You might find an offer of 0% car loan, or cashback or free insurance at some dealers, but you need to understand the price of the car before you jump at those offers, as they may have bumped up the car’s price to pay for those “free” extras.
Many people like to replace their car every two or three years, and a personal contract purchase (PCP) can help achieve this. As this begins, the manufacturer lends you 75% of the car’s value. Together with a promise of a fixed trade-in price, you agree not to exceed a stated mileage, usually around 12,000 miles a year, and you can trade the car in at the end of the period or pay the remaining 25% to own it outright.