Thinking back to the first car that I ever bought - regrettably a Volvo 360 - I admit that I got more than I bargained for. Not considering my finance options better at the time and just going with the flow, I was not until year later that I realised that my by then not so new car would cost me twice as much as I paid over 5 years and that I already owed more on it than it was worth.
The lesson learned was that it seldom pays to take out finance through a dealer, banks loans come with very different rates and if you can get away with borrowing the money, interest free with less rigid terms and penalties from a family member, then you should seriously consider doing so.
If you find a loan with a competitive rate over a sensible length of time, bank loans are a great source for financing the purchase of your new car and can spare you any later complications that would arise if you were to borrow from family.
Interestingly, a recent study discovered that there is a huge gap in the age difference between people financing loans through the dealership and through banks loans. Younger customers greatly favour the better deals provided by the latter while older customers tend to fool for the dealership loans trap.
We compared a number of examples from well known high street banks and found that Alliance & Leicester currently offers the most competitive car loans at 6.9% APR Typical for personal loans between £7,500 and £20,000 (as of 20/09.2007). Applying Online is also simple and takes 10 minutes and you could have a decision within the hour so can be as quick as using the dealership. However, unlike the car dealership loan, such personal loans are usually a simple interest loan with no hidden charges.
Car Loans Compared*
New customers taking £7,500 over 60 months
|
APR Typical |
Monthly Cost |
Total Payable |
Savings |
|
|
Alliance & Leicester |
6.9% |
£147.55 |
£8,853.00 |
- |
|
Lloyds TSB |
7.4% |
£149.23 |
£8,953.80 |
£100.80 |
|
Abbey |
7.9% |
£150.74 |
£9,044.40 |
£191.40 |
|
Egg |
9.9% |
£157.57 |
£9,454.20 |
£601.20 |
|
Black Horse |
11.9% |
£164.57 |
£9,874.20 |
£1,021.20 |
Source of competitor data:
Moneyfacts.co.uk - the money search engine 23.07.07I recommend that you always use a comparison engine such that that on
Uswitch or www.fool.co.uk in order to compare loans for the best current rates at the time of action as lenders are constantly trying to outdo each other and today’s best deal may not be tomorrow’s.If you are able to finance a new car by borrowing from a family member or friend, this is worth considering. So long as you stay true to your word with regards to repayments, this should work out to be a good arrangement with extremely competitive interest rates or interest free, not to mention easy, quick and very flexible terms at times and a far more personalised service that any bank could provide.