Dealer finance could ‘brake' the bank

UK motorists are set to waste almost £168 million by signing up to car dealer finance when they buy their new ‘58' registration cars on 1 September, reveals uSwitch.com, the independent price comparison and switching website.

Of the 2.4 million cars purchased in the UK last year, 419,290 - a massive 20% - were sold in September and 50% of these were purchased with dealer finance. Although the credit crunch has resulted in a 3% decline in car sales over the past 12 months, motorists that can still afford to buy should not waste money on costly finance deals advises uSwitch.com. By opting for a low rate personal loan instead of dealership finance, consumers could save an average of £826 each in interest payments over three years.

For example, a motorist looking to purchase one of the UK's top five selling cars, the Vauxhall Astra TwinTop Air at a cost of £18,215 with a deposit of £1,821.51, could expect to pay 11.4% typical APR through Vauxhall's car finance deal. This would cost £2,871.91 in interest over 3 years. However if the same purchase was made using Asda's Personal Loan, the typical APR would be just 7.4% and the total interest paid just £1,871.83 a saving of £1,000.08.

Simeon Linstead, Head of Personal Finance at uSwitch.com comments: "Shopping around for competitive loan before shopping around for the car is essential. Buying a brand new car is a big expense which can be seriously inflated if the financial arrangements are not researched thoroughly. Trusting consumers may think that purchasing a vehicle from a reputable dealer also means they will be offered the most competitive finance deal - but this is certainly not the case.

"Paying over the top for finance is one expense that can be easily avoided. Consumers should search for a competitive deal with best buy unsecured personal loans starting from just 7.4% typical APR, 2.77% lower than the average car dealer finance at 10.17% typical APR. This really is a case of ‘act in haste, repent at leisure' as a loan from the dealer could cost the consumer as much as £1,000 extra in interest. Having the money available before choosing a new vehicle can also add to your bargaining power when on the forecourt - you may find you are able to drive down the cost of the car as you strike an immediate deal."

Simeon's top tips for new car finance:

Best buy unsecured personal loan rates are only available to people with a good credit history so not all car buyers will be able to get them. However, it's still worth shopping around as our analysis shows that dealers charge up to 11.9% typical APR.

Having the money ready before you start car hunting will strengthen your bargaining power as you can make the purchase immediately - you are effectively a cash buyer.

Some car dealers offer 0% finance on new cars, these deals are definitely worth considering if you can get one - you may have to pay a hefty deposit though.

When looking at car dealership finance, make sure you take into account the size of the deposit and the final payment as well as the monthly payments as this can really ramp up the overall cost.

Car dealer finance is not the only way new car buyers can lose out - depreciation is also a big factor to consider as some new cars can lose anything up to 43% of their value in the first year alone.

Leasing deals can sometimes work out cheaper as consumers will not have to pay for servicing and will also rule out depreciation costs.