Special Report on the Motor Show (7): The best financial deals for your wheels: Money talks, but HP or a personal leasing contract may be better than a bank loan, writes Anthony Lewis

BANK loans are an expensive way of buying a new car, yet people trust their bank to give them a good deal and won't trust car dealers.

Simon Page, leasing and finance manager at VW-Audi, says of car buyers being offered finance by a dealer: 'The view of many is, 'He's not a money specialist so there must be some hidden mark-up.' '

Buying the car and arranging finance at a competitive rate in one place is still alien in Britain. 'We go to a bank to borrow money and a car dealer for the car. As an industry we've got a lot of work to do,' says Mr Page.

'People won't change unless we offer varied and innovative products. The rates you can get through a dealer are far superior to anything you can get from a bank.'

Most people buy a new car on some type of hire purchase. As a financing medium it has been around for almost 50 years and we feel comfortable with it, says Peter de Rousset Hall, of Ford Credit.

But there is a small shift away from HP towards what is variously described as personal contract or personal leasing, which at present accounts for about 5 per cent of new car buying. It is very popular in the United States, where nearly all new cars are bought under personal contract.

But Mr Page says it is a much more complex way of buying a car than HP.

Over the last couple of years all the leading car manufacturers have launched personal leasing schemes. Ford's Options, Vauxhall's Choices, Rover's Select and VW-Audi's Private Contract are personal contract schemes. Peugeot is monitoring their progress before deciding whether to do something similar.

These are all aimed at the individual rather than fleet user, but the terms are similar to those of fleet leasing or contract hire in that the user does not actually own the car, and also lay down certain terms of use, the most important of which is mileage. Most deals are over two years, with a maximum 12,000 miles a year.

The aim is to give low-cost, fixed-price motoring. The user pays a monthly sum that covers only the depreciation of the car and interest. A value is placed on the car at the end of the contract period and it is the difference between that and the purchase price which is being paid off. This is why a company such as Mercedes-Benz - whose secondhand values are recognised as among the best in the business - can make out a case for being as affordable as a Ford, Vauxhall or Rover.

Although a 1.8 litre Mercedes-Benz 190E costs pounds 16,745 new, it is still worth an estimated pounds 11,230 after two years and 24,000 miles, so that the user is paying off only pounds 5,515 at pounds 235 a month.

Mercedes-Benz Finance puts the depreciation at 33 per cent - while Ford, Vauxhall and Rover quote depreciation levels of between 55 and 64 per cent. Buy a pounds 10,000 Ford and it will be worth pounds 4,000 after two years and the user will have had to pay out for pounds 6,000.

With any of these schemes, the customer has nothing to put down on his next car, because all he or she has done is pay off interest and depreciation - unless the car is worth more than the previously agreed 'minimum guaranteed future value'.

But, as Mr Page points out, VAG's Private Contract can incorporate all maintenance charges, including replacing tyres, and a substitute vehicle if your own car should be off the road.

The first customers to take up Ford's Options, introduced two years ago, are now coming to the end of their deals. 'We're pleased with what's happening at the end of the contracts. Customers are renewing,' says Mr de Rousset Hall.

However, John Brown, a director with NWS Bank, one of the country's biggest finance companies, believes that personal leasing is more talked about than actually done.

'A lot of people are suggesting it will come,' he says, pointing out that actual leasing schemes are tax-driven. Business customers are taking them up as an alternative to a company-provided car, perhaps funding it with their employer's cash alternative.

Neil Tomkin, motor marketing director with Lombard North Central, says: 'It's early days yet. Leasing is a huge success in the US, where the credit concept is far more sophisticated than in this country. Whether we will adopt the 'lease, don't own' culture of the States is hard to forecast.'

Despite the high profile that personal contract schemes have, hire purchase is still used for at least 50 per cent of car purchases in Britain. It is the ideal financial method for people who want to own the car they are paying for.

But many people still think that if they go to their car dealer as a cash customer, having arranged their finance elsewhere, then they will be able to haggle to get a better deal. And that, says Mr Tomkin, is not really true.

'A building society loan is going to work out at around 23 per cent. A hire purchase deal done through a dealer backed by a finance house can work out at between 16 and 22 per cent, depending on the size of the loan and how much deposit you put down and the repayment time.'

The most common HP deal involves a 20 per cent deposit and a three-year repayment. The reason that finance houses can offer better value than pre-arranged loans is that finance houses keep a stake in what is bought until the last payment, says Mr Tomkin.

Another advantage is that since they specialise in motor finance and are represented inside the dealerships, finance houses have much closer contact than a bank or building society, whose loan might be used for anything from a boat to a new kitchen or exotic holiday.

It pays to shop around and if one of the cars on your short-list is under offer on low-cost finance, then go for it. Low-cost finance is where the manufacturer is sponsoring or subsidising the deal, and the results can often be spectacular.

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    Recruitment Genius: Sales Executive - OTE £30,000+

    £16000 - £30000 per annum: Recruitment Genius: They are looking for individual...

    Recruitment Genius: IT Project Coordinator / Manager

    £25000 - £40000 per annum: Recruitment Genius: A Project Coordinator is requir...

    Recruitment Genius: Mortgage Advisor - OTE £95,000

    £40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...

    Recruitment Genius: Trainee Vehicle Inspectors / Purchasers

    £20000 - £40000 per annum: Recruitment Genius: Trainee Vehicle Inspectors / Pu...

    Day In a Page

    Greece debt crisis: EU 'family' needs to forgive rather than punish an impoverished state

    EU 'family' needs to forgive rather than punish an impoverished state

    An outbreak of malaria in Greece four years ago helps us understand the crisis, says Robert Fisk
    Gaza, a year on from Operation Protective Edge: The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas

    Gaza, a year on from Operation Protective Edge

    The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas
    How to survive electrical storms: What are the chances of being hit by lightning?

    Heavy weather

    What are the chances of being hit by lightning?
    World Bodypainting Festival 2015: Bizarre and brilliant photos celebrate 'the body as art'

    World Bodypainting Festival 2015

    Bizarre and brilliant photos celebrate 'the body as art'
    alt-j: A private jet, a Mercury Prize and Latitude headliners

    Don't call us nerds

    Craig Mclean meets alt-j - the math-folk act who are flying high
    How to find gold: The Californian badlands, digging out crevasses and sifting sludge

    How to find gold

    Steve Boggan finds himself in the Californian badlands, digging out crevasses and sifting sludge
    Singing accents: From Herman's Hermits and David Bowie to Alesha Dixon

    Not born in the USA

    Lay off Alesha Dixon: songs sound better in US accents, even our national anthem
    10 best balsamic vinegars

    10 best balsamic vinegars

    Drizzle it over salad, enjoy it with ciabatta, marinate vegetables, or use it to add depth to a sauce - this versatile staple is a cook's best friend
    Wimbledon 2015: Brief glimpses of the old Venus but Williams sisters' epic wars belong to history

    Brief glimpses of the old Venus but Williams sisters' epic wars belong to history

    Serena dispatched her elder sister 6-4, 6-3 in eight minutes more than an hour
    Greece says 'No': A night of huge celebrations in Athens as voters decisively back Tsipras and his anti-austerity stance in historic referendum

    Greece referendum

    Greeks say 'No' to austerity and plunge Europe into crisis
    Ten years after the 7/7 terror attacks, is Britain an altered state?

    7/7 bombings anniversary

    Ten years after the terror attacks, is Britain an altered state?
    Beautiful evening dresses are some of the loveliest Donatella has created

    Versace haute couture review

    Beautiful evening dresses are some of the loveliest Donatella has ever created
    No hope and no jobs, so Gaza's young risk their lives, climb the fence and run for it

    No hope and no jobs in Gaza

    So the young risk their lives and run for it
    Fashion apps: Retailers roll together shopping and social networking for mobile customers

    Fashion apps

    Retailers roll together shopping and social networking for mobile customers
    The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

    Gaping hole at the heart of the European Union

    Treatment of Greece has shown up a lack of genuine legitimacy