Your Money: Super models going cheap

Want to buy a motor? Now is a great time, particularly as people trade up to the new August plates. Nic Cicutti has the tips on how to do it right

August is the month for buying new cars, or so we are told. Actually, unless you are one of those people who like to lord it in the company car park with your newly registered motor, it isn't.

This is because the big discounts often available from dealers desperate to meet their sales targets are not on offer this month.

However, August is the month to buy a used car. Tens of thousands of used cars, from tatty models barely held together with string to high- spec executive specials, are part-exchanged in August precisely to finance the new R-plate purchase.

So what should prospective buyers do?

Get it inspected before you buy. Unless you know what you are doing or you have a friend who knows all about cars, it pays to call in the experts.

Other than your local garage, there are four main organisations specialising in car inspections on demand: the AA, RAC, Green Flag and Automobile Buyers Services (ABS). Charges range between pounds 80 and pounds 290 depending on the company and the value of the car.

For that money, you should get a full report. If a seller is not prepared for you to call in the experts, walks away from the sale.

Check the car's past. Sometimes, cars may have been stolen, or may still be the subject of hire-purchase agreements, which means you could lose the car if payments are not kept up. Or the car was written off. Two organisations, Equifax-HPI and the AA, have details of all cars registered with DVLA.

Pick up the best finance deal. There are a range of options, including bank loans, hire purchase, personal contract purchase and dealer finance.

Bank loans are easy to understand and obtain. Their pluses are that there are no arrangement fees, no fixed deposits and the bank can't usually repossess the car.

Hire-purchase deals usually involve a deposit of between 10 and 20 per cent. The car is owned at the end of the agreement, which means it can be repossessed if payments are not kept up. Interest rates can be more expensive than bank loans.

For those buying new, personal contract purchase involves estimating a "minimum guaranteed future value" (MGFV) of the car at the end of a payment term (usually every two or three years). Monthly payments are based on the car price, minus a deposit and the MGFV, plus interest.

On the plus side, contract purchases involve cheaper payments and the near-promise of a new car every few years, but at the cost of mileage restrictions and potentially missing out on full ownership of the car unless you then pay the MGFV when the contract expires.

Dealer finance deals, typically for used models, are available directly from the salesperson. The difficulty is that the dealer earns commission on the finance because he has a minimum and maximum range of charges within which he can operate. You can haggle, however, for a better deal.

For new cars, in recent years there has been a growth in personal leasing, in effect a long-term rental agreement where in return for a fixed sum you have the use of a car, plus routine maintenance.

The pluses are that you pay much less to drive away the car. On the other hand, you will never own it.

Be prepared to haggle. The typical assumption is that it is possible to haggle on the car price but not on the finance deal. Not so. Be committed to two things: the monthly total you are prepared to pay and an APR (the annual percentage rate) that you will accept. If the APR is more than you could get from a bank, walk away from the deal.

Think hard about insurance in case of illness or redundancy. There may be cheaper options available, or you may already have permanent health insurance through your employment, which means that payments on the car can always be kept up.

If you believe that the payments on your car may be too much, be prepared to think about a cheaper model. Salespeople are aware that once you have sat in it and driven it round the block you may be smitten. But paying for the car is something you will have to do for years.

Buying a car, whether old or new, can lead to years of comfort, enjoyment and freedom. It would be a pity if the financial side of the purchase serves only to restrict and tie you inn

Vehicle inspections: AA, 0345 500610; RAC, 0990 333660; Automobile Buyers Services, 01625 576441; Green Flag, 355606.

Car history checks: AA, 0800 234999; RAC 0990 333660; Equifax-HPI, 01722 422422.

For a free copy of Midland Bank's `Haggler's Handbook', which contains masses of details on how to buy a used or new car and how to pay for it, call 0800 130130.