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Mike Brewer's column
Earlier this year, I told you that now is the best time ever to buy a used car, and I'm sticking by that
However, I've had sleepless nights wondering how many of you rushed out to your local dealer when you should be paying the house-keeping! Cars are undeniably cheap at present, but while the screen price could tempt you to sell the family silver, some of the hidden expenses have had me worrying. If you haven't got the money under the mattress, the chances are a dealer will bombard you with finance options. That way, you get the motor you want, and they share in the interest from the loan company, so everyone's a winner!
Well, it doesn't quite work like that. Some finance deals are very good, but others are so ridiculous, the salesman should be wearing a mask and holding a pistol to your head as he signs you up. In some instances, finance may be the only option. Car supermarket deals are usually the sole answer for people with a bad credit history who want to get back on the road and start building a positive rating again. Their rate might be a couple of per cent higher than normal, but if that's your only option, you'll just have to live with it, and generally you won't be ripped off.
It's the loans sold online and through smaller car sites which thrive on the needy. If you are buying a vehicle on finance, don't switch off the half of the brain that forgets about the real costs. Here's how it works: you buy your motor for £6,200 (the average price of a car in 2006), and put down a £1,200 deposit to borrow £5,000 over 60 months. You have to remember your new wheels will probably cost you more like £10,000 over the five years. You'd be amazed the amount of people who simply forget that fact and still believe they have spent only £6,200.
I had a quick search around the finance companies, including banks, and came up with some startling figures. The cheapest car loan online was 6.3 per cent APR. That worked out to a reasonable £817 interest over five years, bringing the total cost to £7,017. At the other end of the scale was a whopping 62.5 per cent APR, and an incredible £13,950 of interest, which meant our £6,200 motor rocketed to £15,150!
I'm often presented with people who have been paying more than £200 a month over three years, and when they come to part-exchange their car, they wonder why they're still in negative equity.
Another trick for the salesman is to sell payment protection insurance (PPP) from which he'll get a generous commission. PPP can be a good thing, especially if you're in a job that's up and down, as your payments are covered while off work.
The cost can be up to £1,000 for a £5,000 loan, but add this into the finance and pay interest on it, and suddenly the real price could be more like £2,000! Just remember, it's very easy to bolt on car care products, insurance, PPP and so on to the overall price of a motor - yet you will be paying for it for a long time on finance.
If you're stuck and need a newer car, but don't have the loot under the bed, you could consider your local bank. Most of the loan companies borrow the money from the bank to lend to you anyway, so why not cut out the middle man? Bank loans can be a lot cheaper, and you can haggle for a better deal.
I've played off one High Street bank against another to get a rate below six per cent - a significant saving, and enough to take the family for a trip abroad in the new car with the cash. The bottom line is to think before you sign, and make sure you ask what the total amount payable is. You'll be pleased when you have.
Mike Brewer presents ITV's Pulling Power, the Discovery Channel's Wheeler Dealers and the British Rally Championship on Sky Sports
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| The cheapest loan worked out to a fairly reasonable £817 of interest over five years... the worst was an incredible £13,950 on top | |
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Well, it doesn't quite work like that. Some finance deals are very good, but others are so ridiculous, the salesman should be wearing a mask and holding a pistol to your head as he signs you up. In some instances, finance may be the only option. Car supermarket deals are usually the sole answer for people with a bad credit history who want to get back on the road and start building a positive rating again. Their rate might be a couple of per cent higher than normal, but if that's your only option, you'll just have to live with it, and generally you won't be ripped off.
It's the loans sold online and through smaller car sites which thrive on the needy. If you are buying a vehicle on finance, don't switch off the half of the brain that forgets about the real costs. Here's how it works: you buy your motor for £6,200 (the average price of a car in 2006), and put down a £1,200 deposit to borrow £5,000 over 60 months. You have to remember your new wheels will probably cost you more like £10,000 over the five years. You'd be amazed the amount of people who simply forget that fact and still believe they have spent only £6,200.
I had a quick search around the finance companies, including banks, and came up with some startling figures. The cheapest car loan online was 6.3 per cent APR. That worked out to a reasonable £817 interest over five years, bringing the total cost to £7,017. At the other end of the scale was a whopping 62.5 per cent APR, and an incredible £13,950 of interest, which meant our £6,200 motor rocketed to £15,150!
I'm often presented with people who have been paying more than £200 a month over three years, and when they come to part-exchange their car, they wonder why they're still in negative equity.
Another trick for the salesman is to sell payment protection insurance (PPP) from which he'll get a generous commission. PPP can be a good thing, especially if you're in a job that's up and down, as your payments are covered while off work.
The cost can be up to £1,000 for a £5,000 loan, but add this into the finance and pay interest on it, and suddenly the real price could be more like £2,000! Just remember, it's very easy to bolt on car care products, insurance, PPP and so on to the overall price of a motor - yet you will be paying for it for a long time on finance.
If you're stuck and need a newer car, but don't have the loot under the bed, you could consider your local bank. Most of the loan companies borrow the money from the bank to lend to you anyway, so why not cut out the middle man? Bank loans can be a lot cheaper, and you can haggle for a better deal.
I've played off one High Street bank against another to get a rate below six per cent - a significant saving, and enough to take the family for a trip abroad in the new car with the cash. The bottom line is to think before you sign, and make sure you ask what the total amount payable is. You'll be pleased when you have.
Mike Brewer presents ITV's Pulling Power, the Discovery Channel's Wheeler Dealers and the British Rally Championship on Sky Sports
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