Beat the boy racers to a bargain

As the new 04-registered cars take to the road, Melanie Bien test drives the finance options
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The new "04" registration plates go on sale tomorrow - and thousands of motorists will be driving a gleaming new car off their local dealer's forecourt.

Sainsbury's Bank reports that 5.79 million people plan to purchase a car between now and July, although two-thirds will buy second-hand. If you don't yet know what car you want or how you are going to pay for it, you should consider your options carefully.

Worryingly, 69 per cent of those who have recently bought a new or nearly new car admit they didn't shop around for the finance to pay for it, according to research from Alliance & Leicester (A&L). Yet a new car is an expensive purchase. If you have enough cash to buy it outright, you are in a strong bargaining position. Around four-fifths of new car sales are likely to be made by local dealers (based on research from Saga), and many of these can be persuaded to give you a sizeable discount if you haggle. At the very least you should be able to get some free extras.

Generally, though, people need a finance package or loan to buy a car. Most manufacturers offer leasing schemes: you pay a deposit and make monthly payments over several years, with interest calculated according to expected mileage and the depreciation in the value of the vehicle. At the end of the agreement you can either make a final payment and keep the car; exchange it for a new one and start again; or return it to the manufacturer owing nothing.

The other option is a personal loan. Research from Sainsbury's Bank reveals that one-fifth of all car purchases are financed in this way.

Most manufacturers offer both leasing and loans, which are heavily promoted by dealers because they earn commission. They are also popu- lar among car buyers. A fifth of those surveyed by A&L opted for the finance deal offered by their car dealer. Over three-quarters of this group said they had done so because it was the easiest option.

Some manufacturers do have attractive deals from time to time. For example, until 31 March, Peugeot is offering 0 per cent finance for four years on the 307, except the Coupé Cabriolet, and all 406, 607 and 807 models - as long as you have a 35 per cent deposit.

But before signing up to any finance deal, work out exactly how much you'll be paying in the long run. Andy Bayes, head of personal loans at A&L, says that doing your sums before you enter a showroom will stop you being seduced by the manufacturer's deal. "If you use a loan, arrange it to suit your budget before you start to look around [for a car]," he advises. "That way, your finance is already sorted and you can concentrate on getting the best price. If you drive a hard bargain and get the car you want cheaper than the loan you have arranged, you can simply reduce the amount you want to borrow."

Otherwise, you could end up spending more than you intended. If you are buying a new Citroën Saxo 1.4i Furio, for example, the manufacturer would charge you an annual percentage rate of 14.5 for one of its loans.

But moneyfacts.co.uk, the financial website, has details of loans from Liverpool Victoria, Cahoot and Lombard Direct all charged at 5.9 per cent, subject to your credit rating. Assuming you had a 10 per cent deposit to put down, this represents a saving of £1,962 on the £9,095 on-the-road price of the Citroën Saxo.

If you don't have access to the internet, you can still get your hands on some good deals. Lombard Direct offers 6.1 per cent, subject to your credit rating, while Direct Line charges 6.2 per cent.

Get a new motor for less cash

* Decide how you are going to pay for your car before you visit the showroom, to avoid being swayed by the dealer's finance package. Look for the list price of new vehicles in car magazines and on the internet to give you an idea of how much cash you will need.

* Think twice before taking out insurance to cover your loan repayments in case you lose your job or fall ill. This is usually very expensive.

* If you have to get a loan, shop around for the cheapest deal online or on the phone.

* Once your financing is arranged, you are ready to find the right car. Try not to choose an unusual colour as you could find it difficult to sell the vehicle on in a few years' time. Silver is a safe bet.

* If you're a cash buyer, haggle with the dealer to get the best price and/or free extras.

* Ask about after-sales service.

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