Car-buyers turn to the forecourt for finance

Credit is just one of motor trade's lures to drivers

Cars are probably the second-biggest asset any of us will own, after our houses, and have become almost essential to most families, whether for work or to join this weekend's great bank holiday getaway.

No wonder that figures released by the Finance and Leasing Association show that over the past year the market for car finance has bucked the trends and remained stable, while most other forms of loan – from mortgages, personal loans through to store cards – have dropped significantly. "Dealerships and manufacturers have recognised that buyers want and need more flexibility, so are offering products that make it easier to fit into people's tighter budgets," says Helen Saxon of the FLA,

The dealers' relative success is shown by a change in the buyers' choice of financial products. "In 2010, 54 per cent of buyers chose to buy a new car with forecourt finance, rather than paying cash or taking out a high street loan, compared with only 42 per cent the year before," says Ms Saxon.

Among products offered by dealerships are traditional hire purchase, where you pay monthly and at the end of the agreement the car is yours; leasing, where, in effect, you hire the car with monthly payments and return it at the end of the deal; and a hybrid option called a Personal Contract Purchase (PCP). These allow the buyer to pay a deposit, usually 10 per cent or so, and then make monthly payments, lower than those for HP. At the end of the contract term they are given three choices: buy the car outright with a lump sum, or a balloon payment, on a formula more or less fixed when you enter the agreement which takes into account mileage and depreciation; hand the keys back; or part exchange for another car.

"There is not that big a difference in the cost at the end between PCP and HP," says Ms Saxon, "but PCP gives you three years, say, to decide if you want to keep the car."

Tim Moss, the head of loans at moneysupermarket.com, agrees that for most people, forecourt finance is the way to go.

"You have far more choice with a dealership. They can give credit to a much wider selection of people as they always have the car to call on if things go wrong."

Mr Moss added that the growing popularity of PCPs could have something to do with the slowly changing attitude of Britons obsessed with the idea of "owning the lump of metal on the drive". "We are starting to accept that by leasing you can drive a better car for lower payments than you could if you were to insist on owning it outright," he says. "On HP, if you're paying for a £15,000 car over three years, expecting to sell it for say £10,000 but then, as has happened recently, the used-car market tanks, and you're looking at only £7,000, you're stuck with an ever-depreciating asset. With PCP, if the car's worth less than predicted you just hand it back."

But, he admits, HP is probably the only viable option for those looking for a used car. "Some of the nationwide nearly new dealerships can offer PCPs, but it is nearly impossible to predict how much a four-year-old car will be worth in four years' time. So HP is by far the biggest method of car finance in the country."

If you can find a lender, Mr Moss advises you to check the banding rates. "Sainsbury's offers £7,500 at 6.8 per cent, but if you borrow £7,000 the rate jumps to 8.3 per cent."

Another option is Marks and Spencer's Car Buying Plan, which acts in a similar way to a PCP in that it defers 60 per cent of the loan until the end of the agreement, giving lower monthly repayments, with a final balloon payment. But you won't have the option of returning the car instead of making the final payment.

Apart from finance, dealers also offer many other lures to get you into the showroom, from free fuel to paying for road tax and insurance. "The manufacturers are all desperate for buyers," says Richard Lawton, of contracthireandleasing.com, warning that it can be difficult to sort out actually what is the best offer. "A pretty common tool, used by most of the major companies, is a free upgrade, so you get an integrated sat nav or a better sound system."

Another widespread wheeze, says Mr Lawton, is "free servicing or a good discount on servicing, usually for three years".

And several manufacturers have been doing battle over the best warranties. A few years ago, the industry standard was three years. "Now you've got Toyota, Hyundai, and Chevrolet at five years, Kia at seven years. And Vauxhall offers a guarantee 'that could last a lifetime'."

Finacial products from our partners
Property search
  • Get to the point
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 Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

    Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

    £50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

    Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

    £13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

    Ashdown Group: Training Programme Manager - City, London

    £40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

    Day In a Page

    NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

    Who's monitoring the outsourced NHS services?

    A report finds that private firms are not being properly assessed for their quality of care
    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

    The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
    How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

    How do Greeks feel about Syriza?

    Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
    From Iraq to Libya and Syria: The wars that come back to haunt us

    The wars that come back to haunt us

    David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
    Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

    Too busy to surf? Head to The Pool

    A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
    Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

    UK's Major Tum to blast off on a spice odyssey

    Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
    John Harrison's 'longitude' clock sets new record - 300 years on

    ‘Longitude’ clock sets new record - 300 years on

    Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
    Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

    Let the propaganda wars begin - again

    'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
    Why Japan's incredible long-distance runners will never win the London Marathon

    Japan's incredible long-distance runners

    Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
    Why does Tom Drury remain the greatest writer you've never heard of?

    Tom Drury: The quiet American

    His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
    You should judge a person by how they peel a potato

    You should judge a person by how they peel a potato

    Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
    Beige is back: The drab car colours of the 1970s are proving popular again

    Beige to the future

    Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
    Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

    Bill Granger cooks with fresh cheeses

    More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
    Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

    Shay Given: 'This FA Cup run has been wonderful'

    The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
    Timeless drama of Championship race in league of its own - Michael Calvin

    Michael Calvin's Last Word

    Timeless drama of Championship race in league of its own