Beware Car Loan Costs

Up to half a million people will drive off in a new 54 reg car out on Wednesday. Yet most will have been taken for a ride if they don't shop around for the best credit deal.

Many are paying interest rates of nearly 14 per cent when they could have got a personal loan as low as 5.8 per cent. In hard cash, that means a Ford Focus could cost nearly pounds 1,700 extra.

Sixty-nine per cent of buyers do not shop around when choosing finance for new or used cars, according to research from Alliance & Leicester.

And one in five people automatically opt for the finance deal offered by the car dealer - with over half believing dealer schemes are the most competitive.

Under most car finance or hire purchase schemes, you pay a deposit of around 10 per cent and then pay off the rest in monthly instalments over three to five years. However, in some cases interest rates can be more than double those on the cheapest personal loans.

There is a wide range of deals available depending on which make of car you buy and your credit history. Our table (above right) compares the finance on offer from Renault, Ford and Vauxhall with the best personal loan rates.

If a driver took a Ford deal over three years with a 10 per cent deposit for a new Focus Ghia car costing pounds 15,362, the total amount paid, with interest at 13.6 per cent and including the cash deposit, would be pounds 18,265.

This is based on a loan amount of pounds 13,826 - which is the cost of the loan minus the 10 per cent deposit.

But if you opted for one of the cheapest personal loans currently available from either Northern Rock or Cahoot at 5.8 per cent, the total amount repaid, including the 10 per cent deposit, would be pounds 16,608. That's a pounds 1,657 saving on the car finance deal. Cahoot's variable rate is only available online at www. cahoot.com or through www.money supermarket.com, but if you don't have access to the Internet, Northern Rock's loan can be applied for by calling 0845 605 0808.

Michael Senior, head of personal lending at Bradford & Bingley, said: "Finance deals offered in the showroom do not always represent good value when you are looking to buy a car. If you take the time to look for the best loan, then buying a new car needn't put too big a dent in your finances."

Darren Heslin, 28, of Cheshunt, Herts, saved nearly pounds 400 by opting for a personal loan rather than a car finance deal when he bought his Mitsubishi Pajero jeep.

The Coca-Cola production manager, who lives with partner Sarah Harrison, 27, bought the L-registration jeep for pounds 5,000, borrowing pounds 3,000. The dealer offered finance at 12.5 per cent over two years, which would have cost pounds 141 a month, but Darren opted for a fixed rate deal with Cahoot at 6.7 per cent.

He said: "Monthly payments cost pounds 133 at this rate over two years, so I will end up saving nearly pounds 400."

Source: Sunday Mirror