Drive a hard bargain on finance for your new car

Almost half a million Britons are expected to splash out on a new car this month, following the release of the new 06 registration plates on Wednesday. But while most prospective buyers will spend an average of three months choosing a car, research from What Car? magazine shows that many will give no thought at all to getting the best car-finance deal.

According to uSwitch. com, the price comparison service, motorists could save as much as £3,000 in interest on a £12,000 car loan, simply by shopping around for the best rates and not taking the first finance deal they are offered in the showroom.

"It's very rare that the deals from the showrooms are competitive with the best personal loans," says Nick White, uSwitch.com's head of personal finance. "Too many consumers get roped in to showroom deals because they are offered a big discount on the car. But the you could probably get that discount anyway if you bargained hard enough."

Unless you've got cash available to pay upfront, there are three main ways to finance your car purchase. Each has pros and cons, so its worth giving them some careful consideration before signing.

However, before you set off to the show room, think about the big disadvantage with buying most new cars: depreciation. The value of a brand new vehicle plummets the second you drive off, so even before financing costs, motorists will be out of pocket - often by 20 per cent or more.

HIRE PURCHASE

Car dealers are often all too quick to try to sign customers up to hire-purchase agreements. These are loans that are secured on your vehicle, and which are paid back in monthly instalments over a set number of years.

However, while the very worst finance deals on the market are often found in the car showroom, so too are the very best.

For example, if you buy a Ford Focus 2.0 Climate from Perry's, one of the UK's largest independent car dealers, you'll be offered a typical interest rate of 14.4 per cent for a five-year loan. After you've paid a deposit of £1,000 up front, you'll end up paying back almost £17,000 for a loan of £12,300 - some £3,060 more than if you'd opted for the most competitive personal loan on the market (see below).

In contrast, Vauxhall dealers are offering 0 per cent interest for up to four-years on many of their cars at the moment. And even when the 0 per cent offer is over, the company still boasts regular finance deals at 5.5 per cent a year, which is as good as anything you'll find in the personal loan market.

Once you know which car you want, it's worth checking the maker's website as well as a handful of local dealers to see what generic finance deals they are offering. As well as good rates, some hire purchase agreements also come with free insurance or free road tax for a limited period - which are valuable perks.

Most of the 0 per cent deals require an upfront deposit of at least 20 per cent. But some of the higher-rate deals will allow customers to sign up without any upfront payment.

PERSONAL CONTRACT PURCHASE (PCP)

PCP plans tend to offer the best value for motorists who like to have a new car every few years. They also allow you to make smaller monthly repayments.

With these deals, the car retailer will typically offer to lend you around 75 to 80 per cent of your car's value, repayable over a three-year period. At the end of the three years, you can then choose from one of three options - either to pay the remaining 20 to 25 per cent and keep the car, to hand the car back to the dealer and walk away, or to trade the car in for a new one.

Trading the car in will ensure that its full secondhand value is recognised by the dealer, allowing you to get your hands on a new model with little change, and maybe even a reduction, in your monthly payments.

Again, interest rates can vary dramatically from dealer to dealer - so it's worth shopping around. Zero per cent deals are available.

Another advantage to this type of deal is that you have some protection against any rapid deterioration in secondhand car prices. Once the retailer has decided on your car's minimum final value, you are guaranteed to have at least this amount credited towards a deposit if you decide to trade in at the end of the three-years. More often than not, however, the car is worth more than this by the end of the period.

PERSONAL LOANS

The personal loan market has become incredibly competitive over the past few years, with market-leading deals now on offer for as little as 1 per cent above the Bank of England base rate (currently 4.5 per cent). Moneyback, for example, charges a typical rate of 5.5 per cent on loans up to £25,000, while Cahoot has a typical rate of 5.6 per cent.

The advantage of using a personal loan to buy a car is that it is unsecured, so you don't have to pay off your loan if you decide to sell your car early. Also. personal loans are the cheapest way to borrow, other than interest-free deals.