Before you buy that car, do the maths

Add up all the costs to see what you can really afford, says James Ruppert

Buying a car is the second most costly purchase of most people's lives, but too many drivers get emotional about the deal. They make more fuss about colour and style than they do about running costs and reliability. That's a shame, because a car is just a consumer durable, a machine with a job to do. So if you're shopping for a new car this Easter, it pays to be as rational as possible.

Buying a car is the second most costly purchase of most people's lives, but too many drivers get emotional about the deal. They make more fuss about colour and style than they do about running costs and reliability. That's a shame, because a car is just a consumer durable, a machine with a job to do. So if you're shopping for a new car this Easter, it pays to be as rational as possible.

Start by working out how much you can really afford to spend. The best way to finance the purchase of a new car is usually with cash, but most people need to borrow at least part of the purchase price.

If you borrow, be wary of car dealers who make large commissions from finance packages. Showroom finance is not always more expensive, but analyst Moneysupermarket says the cost of buying a Ford Mondeo, for example, with Ford's own finance package, will end up at about £22,500.

Ford's loans cost 15.1 per cent a year, whereas by borrowing from lenders such as Alliance & Leicester, Churchill and Direct Line, you can get less than 6 per cent. That would reduce the total cost of the same car to £20,200.

However, contract plans, on offer from most car dealers, are still worth considering. You put down a deposit, make monthly payments and at the end of the plan you can pay the final balance to keep the car, or hand it back and switch to a new plan on another new vehicle.

This means you can change car every three years or so, but check the small print carefully. Some agreements limit mileage, stipulate service frequency and tie you to a particular insurance package.

Don't just think about the upfront expense when working out what car you can afford - running costs are just as important. The data panels in the back of most car magazines will enable you to divide your annual mileage by the miles-per-gallon figure for most models. Then multiply that by the horrendous cost of petrol.

Next, find out about servicing costs by phoning a dealer to check the price of two standard services a year. Add in road tax and insurance - most insurers will give you ballpark quotes for new models - and you have calculated the total cost of a year's motoring.

Even if you can afford this, don't forget about depreciation, a serious problem with many new cars. Go back to the car magazines' data tables to find out what the car might be worth after a year.

When these calculations are done, you can start shopping. There are several ways to buy a new car. First, franchised dealers are a safe place to shop because they are backed by manufacturers' warranties. Some also offer premium-quality used cars with comprehensive warranties. In both cases, you are likely to pay extra for peace of mind.

Alternatively, consider car supermarkets, which have a huge selection of former company cars and sometimes auction used cars. They also sell pre-registered brand-new vehicles offered at a significant discount, but it helps to know specifications and whether the model you are considering is obsolete. Also check exactly what warranty you will get.

Car brokers, meanwhile, source cars from UK dealers but they save you the hassle of negotiating for a discount by doing it for you. In addition, you have the reassurance of buying from a main dealer and getting a full warranty. Or you can talk to an independent used car dealer: well-established businesses are cheaper and they are usually prepared to supply a warranty for the car.

Even if this is the case, however, be especially careful with guarantees on used cars: you only get what you pay for. A cheap warranty means very spartan protection if something goes wrong. Some dealers fob customers off with three months, but you should negotiate for 12 months or more.

Finally, there is the private market. Most private sellers are decent and honest people, just like you, and the cars should be cheaper than at a dealer, but remember that there is a limited comeback if the motor lets you down.

In all cases, you need to test-drive a car before buying it. Also make sure the seller has the right paperwork, including the registration document, MOT and service history to hand. In addition, unless you're a fully-qualified car mechanic, consider paying a professional to inspect any car that does not come with a warranty.

When you are satisfied, it's time to haggle, a skill too few people in this country have honed. It pays to be polite, friendly and know how much you are prepared to pay.

For used cars, there are price guides such as Parker's and classified car ads. With new cars, shop around among dealers and brokers.

A few tips may help: always haggle at least in hundreds or thousands, rather than over a tenner; be direct - ask for a deal because you want to buy right now; and don't be too eager - walk away if you don't get the deal you want.

There are some golden rules of car buying. Start by setting a budget. Stick to it and never buy something you can't afford.

Do your homework: The more you do, the more you will know about the car you want and the better the deal you will end up getting.

Don't be afraid to ask for assistance from those in the know - talk to an expert if needs be.

Above all shop around, on the car itself, as well as the finance package and insurance. And remember you don't have to buy. If you have any doubts at all, walk away; there are thousands more cars to choose from.

THE BEST DEALS AS YOU SHOP AROUND...

* Brokers are a great source of new cars supplied directly from UK dealers. So, www.drivethedeal.com has Renault Clio 1.2 Dynamiques with Cool Pack option of air-con and sunroof for £7,299, a saving of £2,950 on the list price of £10,250. Even the new Mercedes A Class is being "brokered down". An A150 Classic SE 3dr at drivethedeal at £13,442 is £492 less. www.ukcarbroker.co.uk has discounts on the Ford Focus - a 1.6TDCI 16v 110ps LX 5-dr costs £11,811, down from £14,345. And www.new-car-discount.com has 2004/54 reg Rover 75 1.8 Connoisseurs in metallic at £11,500, down from £18,695.

* Going direct to the franchised dealer can also pay off with some makes and models. Citröen has been building an image as a "value for money" brand recently and dealers can offer discounts. Xsara Picassos are on offer at Citröen dealers and you can save up to £3,900 if you buy before 31 March. Picasso prices start at just £9,999. (0800 262 262). VW dealers offer petrol Golf 1.6S, models with a 0 per cent finance package. You have to pay in two years and find 30 per cent deposit. (0800 333 666). Nissan dealers offer the Primera SX 1.8 5dr with DVD satellite navigation worth £1,200 and 3 years 0 per cent APR from £14,995.

* Car supermarkets have changed the scene. Buyers can wander through the lots and compare competing vehicles first hand. Given trends in petrol prices it's unsurprising that big savings can be found on petrol-engined executive cars. (Diesel engined ones don't depreciate so fast). If you want cheap luxury and prestige, look no further than a Mercedes-Benz S Class 500L, 2001 model, for £18,999 at www.cargiant.co.uk. If want fun then go for a Ford Street Ka, with very low miles, under 5K at Motorpoint for £8,599 (a saving of £4000 on list) www.motorpoint.co.uk.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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