- 23
- Mar
Following the introduction of the new ‘07 registration earlier this month, some 400,000 Britons are expected to purchase a new car by the end of March.
With the smell of fresh leather seats, a clean interior and shiny bonnet, taking out a motor loan can certainly be tempting for those wishing to get rid of their old banger.
However, consumers are being advised not to rush in and get a finance deal offered by a car showroom which in the long run could leave them further out of pocket then necessary.
According to financial comparison website uSwitch by choosing uncompetitive finance deals, motorists could be wasting a total of some £228 million.
Nick White, director of financial services, added that because of this hire purchase agreements usually turn out to be a long-term "burden" for borrowers.
He said: "The average interest rate for a car showroom finance deal is 4.22 per cent higher than the best personal loan rates available and nearly double the current Bank of England base rate."
Mr White added: "Not only is a personal loan cheaper, by organising the loan before visiting the car showroom, people will not feel pressured to get the cash quickly to secure the car of their dreams."
Although, they are often more expensive, a hire purchase agreement is usually one the most popular options of financing a car, as it allow buyers to arrange their payments schedule just before they are handed the keys to their new motor, reports the Guardian.
The publication pointed out that hire purchasing accounted for 43 per cent of all new cars bought over the course of 2005.
Hire lending is secured against the car, with the amount consumers having to borrow being depending on the value of an old car used in a part-exchange deal or how much is put down on an initial deposit.
However, if drivers should run into debt management problems and are forced to default on their payments, they are not allowed to sell their vehicle until they have made the final payment as the car becomes the property of the finance company.
According to research by Sainsbury’s Bank, some 26 per cent of Britons who intend to buy a car over the forthcoming six months intend to use a personal loan to fund some, if not all, of their purchase.
And although personal loans will account for some 15.8 per cent, or £8.41 billion, of all car financing within the coming months, Steven Baillie, loans manager for the financial provider, claimed that if more Britons took up this method they could save thousands of pounds on the cost of their new motor.
He reported that it was "more important than ever for people to shop around due to heightened competition in the market" in a bid to get the best deal for themselves.
Mr Baillie’s comments were echoed by Michelle Slade from price comparison website Moneyfacts who claimed that although sub-six per cent loans are "almost extinct" motorists can still find a good deal on a cheap loan, which could save them thousands.
Ms Slade added that despite the "freebies" offered by many showroom deals, consumers should spend as much time as possible looking to get the right finance deals for them.
She said: "After all, you’re happy to spend ages finding the right car, so why not apply similar logic to your search for vehicle finance?"
"With a little time spent to secure the best finance deal, you could have paid for extra upgrades such as a climate pack or spoiler," Ms Slade added.
According to Interfinancial director, Stuart Pike, despite the convenience of showroom finance deals forming a tempting option, by choosing a low rate personal loanconsumers are much more likely to leave the forecourt with more cash in their pocket.
He added: "Even with zero per cent [showroom finance deals], the price of the car can often be more than you would pay by getting a personal loan and getting the price down by bargaining with hard cash."
Interfinancial providing you with breaking motor loans news.
