Car Finance - The Facts

Because New-Cars.co.uk is completely independent, we want our visitors to understand that there are good and bad ways to finance a new car purchase. Many web sites carry banners and full page ads from car finance companies offering to provide for your next car.

Our opinion and recommendation? Don't Touch Them!

Car finance can be extremely expensive.

There are a number of "finance companies" around these days that will offer to find you a car as well as the finance. You might have seen them on TV and you will certainly see them advertising on other car web sites.

They claim to take all of the hassle away from choosing a new car because they supply the entire package - it's a bit like a car dealership, but in reverse - in this case, you shop for the loan, but they get you the car as well.

This is probably the most expensive mistake you could ever make when looking for your next car - and if the experiences of our research is anything to go by, it could be an extremely humiliating one too.

Our researcher went along to a heavily advertised car finance company in the midlands in October 2005 and told the "consultant" (they don't like being called sales people) that he was looking for a small family car.

The "consultant" said that he could show him a selection of vehicles but that he'd have to do some basic figure work first in order to determine the best vehicle for his budget.

This sounds ok in theory, but the reality is that all the "consultant" was doing, was trying to determine a maximium monthly budget that our researcher could afford.

Again, that might not be too bad an idea in many cases, but it took no account of the length of time that it might take to repay a loan...

We knew what was comping, because we'd been tipped off earlier.

Our researcher said that he could afford up to £200 per month.

The "consultant" proceeded to show our researcher a number of rather poor, old and tired cars that were probably worth no more than £2500 on a good day. Amazingly none of the cars had a price sticker on them and when asked the price, the "consultant" told him not to worry about that, because these cars were easily affordable and came in at only £180 per month!

It wasn't until our researcher selected a car (only for the purposes of this article) that he was taken inside and shown the figures - not the actual "cash" price, just the finance costs!

Eventually, our researcher tired of the games and began to ask awkward questions like,

Q) How much if I pay cash?

A) We don't do cash deals

Q) How long do I have repay the loan for?

A) I have worked this quotation out at 48 months, but can reduce the payments by extending that to 60 months if you prefer

Q) What is the total I would have to repay?

A) Once we agree the deal that suits you best, I can print all the details out for you

Q) Could i see some other cars?

A) Those are the ones that are within your budget

The APR on these "deals" was a little under 20% at a time when the Bank of England rate is less than 5% - disgraceful!

These people sell cars to individuals who can't really afford them and probably who would be turned down by conventional finance companies.

We wouldn't touch them with a bargepole.

Other finance options include responding to TV or newspaper ads and simply applying direct - but again, unless you are borrowing over £5000, you won't get great interest rates.

Our suggestion, for what it's worth, is to try online banks such as www.egg.com or www.if.com - these two companies have superb reputations, provide instant decisions and generally have interest rates at around 6 or 7% which is a much better way of financing what is essentially a depreciating asset - plus, they won't try to sell you a car that you don't want!

If you can, pay cash - it's the only sensible way to buy a car!