Car Finance

Shop around for your car finance – it pays to research

If you’re planning on buying a new 04 registration car, the chances are you’ll know exactly what you want. From the model to the colour to the spec, you’ll have done your research. Same if you are buying one of the second-hand cars flooding the market when the registration number changes. More than two thirds of people who have bought a new or nearly-new car in the past five years did some research to make sure they got the exact car they wanted.

Yet less than one in three did their research when it came to the most competitive deal for their car.  Buy a new car next week and you could throw away up to £3,000 all because you didn’t bother to shop around for finance.

Alliance & Leicester, which carried out the research, found that more people actually financed their car through the scheme on offer where they bought it, instead of getting a personal loan.

That’s despite the fact that car dealer finance usually has interest rates in double figures while the best personal loans have interest rates of just 5.9%.

Over three quarters of people who buy their car through car dealer finance said they chose this method of payment because they thought it was the quickest and most convenient way.

But almost three out of every five said they thought it was the most competitive deal – and one in three said it meant they got a discount on the car, while one in five said they got extra freebies if they took the dealership’s own car finance package.

Andy Bayes of Alliance & Leicester said “Anyone buying a new car this should shop around for their car finance.

“They should base their overall decision on the rate being offered to them – and not necessarily on the freebies, extras and discounts being offered to them by the car dealership in return for taking their finance.

“The interest rate charged by dealers on nearly new or used cars can often be excessive.

“Although consumers could make significant savings on the discount offered on the price of the car by agreeing to sign up to dealership finance, this will not outweigh the savings made by shopping around for the best personal loans instead,” he said.

Buy a Ford Mondeo Ghia 2.0i five door hatchback on car dealer finance and you would pay £17,690 minus 10% deposit – giving £15,9200 at an interest rate of 10.9%.

Over three years, you’d pay back a whopping £22,126.95, including the deposit.

But borrow with a loan of 5.9% and you’d pay back £19,139.64 – a saving of £2,987.31.

Most finance deals on offer through car showrooms are highly uncompetitive and often charge double the interest rate that conventional loans offer.

People shop around to get the exact colour or model of car they want, so they should also shop around for their car finance.”

Find the right car loan

You don't have to go to a traditional bank or building society for a personal loan as some of the better deals are offered through supermarkets and other lenders, so shop around. 

For the very latest offers view our best loan deals section or use the loan finder to compare loans from all the main lenders in the UK.