Money People: Get Best Loan for Your Car

By EDITED BY SIMON READ

MOTORISTS should shop around to avoid rip-off loan deals when buying a new car next week.

Up to 400,000 drivers are expected to snap up wheels bearing the 06 registration on March 1 – but many will fall prey to smooth- talking salesmen.

A survey by comparison website uSwitch.com shows you can save up to pounds 3,000 with the right finance deal.

Buyers borrowing pounds 12,295 towards a Ford Focus will be charged 14.4 per cent by Perrys Dealership – costing pounds 4,773 over five years.

But take out a 5.5 per cent loan from MoneyBack Bank and you’ll pay just pounds 1,750, a saving of pounds 3,023.

Nick White of uSwitch said: "The message couldn’t be simpler: Don’t pay more for the finance than you have to. Motorists should look around for the most competitive personal loan."

Some dealers even offer 0 PER CENT, but you’ll need a hefty deposit to qualify – as much as third of the value of the car.

It’s also important to know your financial limits before visiting a showroom.

That way you can avoid your wallet being stretched to breaking point.

The main sources of competitive loans for cars are banks and building societies, or telephone and internet lenders.

The average interest charged is around 7.5 per cent. Lowest rates on loans of pounds 10,000 are 5.5 per cent at MoneyBack Bank, the Alliance & Leicester’s online lender.

Next best is Cahoot at 5.6 per cent followed by Northern Rock and the Post Office at 5.8 per cent. Make sure you look closely at the rate when ringing for a quote – it may depend on your credit rating.

The higher risk you are perceived to be, the higher the loan rate.

Buyers should also be wary of insurance add-ons aimed at ensuring the loan is repaid if you lose your job through sickness or unemployment.

Sean Gardner, from money expert.com, said: "Payment protection insurance can add hundreds to a loan and may not be necessary for many.

"If it is desirable, make sure you’re getting a good deal."

A loan of pounds 15,000, for example, will cost pounds 300 per month over five years. The payment protection insurance would be a further pounds 60 a month. So, again, shop around. Specialist broker Paymentcare would charge pounds 16.50 a month to protect the same amount.