How to cut the cost of car finance

If you are one of the more than 400,000 people expected to splash out on a new car with ‘57’ plates next month, be sure to steer clear of showroom finance deals that add thousands to your total bill.

But that’s just the tip of the iceberg: With talk of tax cuts for ‘greener’ cars and sizeable penalties on those that don’t make the eco grade, choosing the wrong model could make the costs of a showroom deal pale into insignificance.

So read on about how to navigate your way through the minefield of choosing – and buying - a new car in these confusing times, and we’ll also let you in on how the government might actually be rewarding the worst polluters on our roads.

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Hurdle #1: Showroom finance
Price comparison site uSwitch estimates that 180,000 new cars will be purchased with showroom finance deals next month, wasting £175 million in the process. “Just because they’re offering the best deal around on the car, doesn’t mean they’ll offer the best way to pay for it too,” says uSwitch personal finance expert Mike Naylor.

Naylor puts the average showroom loan rate at 10.76%, but gives special mention to a certain Perry’s Dealership, which charges an eye-watering 12% APR. There’s absolutely no reason to pay such exorbitant fees when banks are offering personal loan at nearly half that rate– both Moneyback Bank and Youpersonalloan.co.uk offer loans at 6.3%.

So how much will that save you in the real world? Let’s say you buy a Renault Clio Campus Sport for £9,995 and cover that with a five year loan from either of the two lenders mentioned above. Your total bill with yourpersonalloan.co.uk comes to £11,934.61, while Moneyback is marginally more expensive at £11,645.40.

But if you blindly accepted financing from your car dealer at a rate of 10.76%, you would have to fork out £12,973.75 –nearly £1,350 more.

“The message couldn’t be simpler – don’t pay more for the finance on your new car than you have to,” says Naylor.

Give car dealers the swerve with a personal loan