The loans that will bring your new car skidding to a halt

If you're heading for the showrooms next month in pursuit of a '57' numberplate, beware of depreciation and being tempted by the dealer's funding package. Esther Shaw reports
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The Independent Online

Consumers who buy brand new cars next month need to brace themselves for a financial shock after they've hit the road.

The top 10 best-selling cars in 2006 have depreciated by an average of 42 per cent in the first year alone, according to new figures from price-comparison service uSwitch – leaving drivers a total of £4.8bn out of pocket. That equates to a loss of £497 a month.

The Ford Focus 1.8 – the UK's best-selling car – suffers the highest level of depreciation in its first year at 48 per cent, uSwitch found; for the number three, the BMW 325d SE Coupe, the figure is just 25 per cent.

In most cases, a one-year-old car represents far better value as this is the period when the bulk of depreciation takes place.

With the new car registration plates due out on 1 September, motorists are poised to spend billions on models with the 57 number. But before you rush down to the showroom, check the various ways of financing that sporty little number or reliable runaround to avoid being taken for a ride.

If you're even considering using the dealer's own loan package, often charging interest at above 7 per cent, you'd be well advised to hit the brakes. Out on the open market, for example, YourPersonalLoan.co.uk offers a deal at 6.3 per cent and Masterloan has one at 6.5 per cent.

Also watch out for "specialist deals" offering extras such as free car inspection, insurance or breakdown cover. "Often the freebies, discounts or perks don't make economic sense if you have to pay a higher rate," says Lisa Taylor from financial analyst Moneyfacts. "The new Barclays deal includes discounted RAC breakdown cover but the rate is 7.4 per cent typically – 1.1 percentage points above the best deals on the market."

Motorists need to do their sums to see if the savings are worth incurring a higher interest charge.

When shopping around, make sure you use the total repayment figure to compare deals. This is particularly important if you opt to take the provider's payment protection insurance – cover designed to fill the breach if the borrower is unable to make repayments because of accident, sickness or unemployment.

If you already have a personal loan, or can't get a cheap deal, you could consider leasing a car instead – which basically involves borrowing the car at a price.

There are two types of leasing: personal contract purchase and hire purchase. With the former, you put down a deposit and make low payments for an agreed period – three years, say – to cover part of the car's cost. At the end of the contract, the car will be worth more than the final payment owing, and you then have the choice of clearing its remaining value and owning it outright, or starting another plan with a new car.

This scheme allows you to drive away a new vehicle every few years – so you don't have to worry too much about servicing costs. In the long term, however, you could end up paying a lot of money, particularly if the cost of credit is high.

On the road for £5,600 a year

The average family car now costs £5,627 a year to keep on the road – up £163 on 12 months ago, reports the RAC.

While depreciation looms large, the RAC's figures show a fall in day-to-day expenses. Car maintenance costs are down by 8 per cent to £273 a year, while petrol and diesel prices are 0.24 and 1.22 per cent lower per litre than a year ago.

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