Money: Drive a hard bargain when you buy your next vehicle

Published on Saturday 30 August 2008 15:09

Haggle with dealers and shop around for loans to lower the price tag, writes Emma Lunn

NEW '58' registration plates hit the forecourts tomorrow, but industry experts warn that motorists are losing out by not haggling on the forecourt or researching finance options.

When motorists are facing record fuel prices and higher car tax for gas-guzzlers, they can ill afford to pay over the odds when they purchase a vehicle.

But according to Esure car insurance, only two-thirds of motorists questioned admitted they would always bargain down the price tag of a new or used car.

On top of that, 68% of motorists surveyed said they don't do any research on finance deals when buying a car, such as looking for the best rates on loans or credit cards.

Scots are the most likely to do a deal with their salesman when it comes to paying for their new car, with 22% opting for showroom finance, while the English and Irish favour personal loans or credit cards to fund their purchase.

However, not researching finance options and simply opting for what the dealer offers can cost motorists dear.

Mike Pickard, head of risk and underwriting at Esure, says: "With the cost of motoring on the up, it's more important than ever for drivers looking to change their car to make sure they get the best deal.

"Whether it's bargaining on the forecourt or shopping around for the right finance package or insurance cover, an hour or two of researching at home can make a real difference to your wallet."

According to price comparison site uSwitch.com, around half of all new car purchases are made through dealer finance. However, the average car dealership finance is at an APR of 10.17% – 2.77% higher than the cheapest unsecured personal loan available at 7.4% APR.

As a result, UK motorists are set to waste a collective 168m by signing up to car dealer finance when they buy their new '58' registration cars rather than shopping around for a low-cost personal loan instead.

When you look at the figures it's clear to see that there are often better options that those on offer in the showroom.

For example, a motorist looking to purchase a Vauxhall Astra TwinTop Air for 18,215 with a deposit of 1,821.51 could expect to pay 11.4% typical APR through Vauxhall's car finance deal. This would cost 2,871.91 in interest over three years. However, if the same purchase was made using Asda's Personal Loan, the typical APR would be just 7.4% and the total interest paid 1,871.83, a saving of 1,000.

Some car dealers offer 0% finance on new cars and these deals are definitely worth considering if you can get one, although you may have to pay a hefty deposit. But with cash in your pocket you may still do better by negotiating a bigger discount off the price.

Simeon Linstead, head of personal finance at uSwitch.com, says: "Shopping around for a competitive loan before shopping around for the car is essential. Buying a brand new car is a big expense which can be seriously inflated if the financial arrangements are not researched thoroughly.

"Trusting consumers may think that purchasing a vehicle from a reputable dealer means they will be offered the most competitive finance deal, but this is certainly not the case."

Linstead says that unsecured personal loans start at 7.4% at the moment, with Asda topping the best-buy tables. This rate is 2.77% cheaper than the average car dealer finance at 10.17% APR. Other best buys include Moneyback Bank at 7.6% and internet loans from the AA, Sainsbury's Bank and the Bank of Scotland, all at 7.7%.

"This really is a case of act in haste, repent at leisure, as a loan from the dealer could cost the consumer as much as 1,000 extra in interest," he says. "Having the money available before choosing a new vehicle can also add to your bargaining power when on the forecourt."

In any case you should try to haggle down the ticket price when you buy a new car. According to Sainsbury's Bank, British motorists can save an average of 1,468 off the price of a new car if they are prepared to negotiate.

Before you visit a dealer or second-hand salesman, do some homework and find out the size of discounts that companies are offering. Brokers, internet companies and car supermarkets have information online, and the What Car? target price will show you the average price that you can expect to pay for a car.

If buying privately, find out what similar cars are going for and then negotiate with the seller. At a dealership there could be room for manoeuvre on extras and part-exchange, and the ability to pay in cash or by cheque on the spot can be a handy negotiating tool.

When choosing a new car bear in mind how much road tax you will have to pay. In this year's Budget, Alistair Darling announced that from 2009/10 there will be six new VED (vehicle excise duty) bands including a top band for cars emitting more than 255g of carbon dioxide per kilometre. These cars will pay an increased VED rate of 425. But greener cars, emitting 150g or less per kilometre, will pay less.

From 2009/10 a new "showroom tax" will also be levied on the most polluting cars, and people driving these vehicles will be charged 950 in the first year. On the other hand, people driving new cars with a 130g/k or less emission level will pay nothing at all.

When it comes to filling up your new car it pays to shop around for the cheapest fuel. Website Petrolprices.com allows users to enter their postcode and then lists the cheapest petrol stations in their area.

The difference between the cheapest and most expensive fuel can be up to 15p a litre – 6 every time you fill up a 40-litre tank.