Due to the economic crisis, many car dealers have been forced to slash prices, and now thousands of people are looking to snap up a cheap car while prices are low.
However, recent research from uSwitch found that less than a third of bargain hunters looking for a cheap car think about car finance before they head to the dealer's forecourt. This could be an expensive mistake, because failing to find a cheap car loan can drive up the price you ultimately pay for your car by as much as 51%.
The average purchase price for one of the top ten best selling cars is £13,631. If you took out a best buy loan, like one from Alliance and Leicester at 8% APR to pay for one of these cars, the ultimate cost would be £16,474. However, if you went for one of the more expensive loans on the market, higher interest payments could bring the cost of the car to a shocking £20,518, cancelling out any discount you got on the purchase price.
Don't fall into the car finance trap, read on for uSwitch personal finance expert Louise Bond's top ten tips for getting a cheap car loan.
1. Best buy unsecured personal loan rates are only available to people with a good credit history, so not all car buyers will be able to get them. However, it's still worth shopping around as there are still quite a few good deals. You can check your credit report for free before you apply.
2. Having the money ready before you start car hunting will strengthen your bargaining power as you can make the purchase immediately - you are effectively a cash buyer.
3. Some car dealers offer 0% finance on new cars, these deals are definitely worth considering if you can get one - you may have to pay a hefty deposit though.
4. When looking at car dealership finance, make sure you take into account the size of the deposit and the final payment as well as the monthly payments as this can really ramp up the overall cost.
5. Leasing deals can sometimes work out cheaper as consumers may not have to pay for servicing and repairs.
6. For consumers with a poor credit score, leasing could be next best available option as they are not actually buying the vehicle.
7. It is also worth looking at cars that have been pre-registered by a dealer. They only have a few miles on the clock so in effect you get a nearly brand-new vehicle at a second-hand price.
8. The collapse of a motor manufacturer can have a knock-on effect on a car's re-sale value plus the availability of vehicle parts - these factors should be carefully considered by potential buyers.
9. As well as haggling on the price, look for free extras such as extended warranties and service packages.
10. Finally, don't forget to watch out for government initiatives like the scrappage scheme, which offers motorists up to £2000 to scrap cars over nine years old.
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