Drive A Deal On Your New Car Purchase

For many of us, buying a car is the second most expensive purchase we make in our lives, and yet all too often we end up paying over the odds for our new set of wheels.

For many of us, buying a car is the second most expensive purchase we make in our lives, and yet all too often we get sucked in by smooth-talking salesmen and end up paying over the odds for our new set of wheels.

The good news is that if you're looking to splash out on one of the new 58 registration cars which began rolling off the forecourts earlier this week, there are now a whole host of ways of financing your new pride and joy.

While many of us opt for the convenience of forecourt finance, such as hire purchase, personal contract purchase or interest-free finance, these schemes are not right for everybody.

Plus, with car dealerships having a tough time in the current economic downturn, you may be better off looking at one of  the alternative ways of financing your purchase.

Opt For A Personal Loan

One of the cheapest ways of borrowing a large sum of money is by shunning showroom finance and taking out a low-rate unsecured personal loan.

There are more than 40 providers offering a range of unsecured loans of between one and seven years, and many offer different rates depending on whether you choose to apply online or over the phone.

The average personal loan rates have increased over the last 12 months, but there are still some competitive rates to be found; while the average car dealer finance currently stands at more than 10 per cent, the best personal loan rates are still well below 8 per cent.

That said, it's crucial that you choose your loan provider carefully, or you could end up paying over the odds.

Recent findings from financial analyst, Moneyfacts, show that the difference between choosing the best and worst loan deal could cost you an extra £769 on a £5,000 loan, rising to £2,400 on a £10,000 loan.

Also be aware of the typical annual percentage rate (APR) pricing, as 93 per cent of loan rates are either typical pricing or personal pricing which means that depending on your credit profile, you could end up paying a far higher interest rate than advertised.

At the same time, be realistic about the term of your loan, as cars suffer rapid depreciation, and you don't want to end up still paying for your car long after it's reached the scrap yard.

Repayment holidays are another important issue. If you took a loan of £10,000 over five years, at 8 per cent APR, and took a three-month repayment holiday at the start of the loan, you would pay an extra £156 in interest charges.

Payment Protection Insurance

Before signing up to a loan, you also need to decide whether or not you want to take out payment protection insurance (PPI).

PPI is supposedly designed to cover loan, mortgage or credit card borrowers who fall ill, have an accident, or lose their job, and can no longer meet repayments.

However, The Fool has been consistently critical about most PPI policies as they're usually overpriced and are often filled with exclusions.

One option is to buy cover from a standalone provider, such as paymentcare.co.uk  or British Insurance, as they offer a more flexible insurance package at a fraction of the cost.

Use Your Credit Card With Care

When it comes to purchasing a new car, you may be tempted to simply swipe your credit card for the full amount - but if you plan to go down that route, you need to tread carefully:

• Only pay by card if you have a card with a low interest rate on purchases, and if you are very self-disciplined.
  
• If your current card charges a high interest rate on purchases, you might want to consider getting a new card that offers an interest-free introductory period for new purchases.
  
• A second option is to switch to a card with a low rate on balance transfers for the life of the card.
  
• Remember that as the interest rates on credit cards vary significantly and change frequently, it is worth taking the time to check the "best buy" tables to keep costs down.

Get haggling

In the wake of the credit crunch, it's more important than ever to get a good price on your car purchase, so don't be afraid of haggling over the price.

Unsurprisingly, the salesman is going to want to sell at the highest possible price, so it's likely to turn into a battle of wills.

That said, if you get your finance arranged before going shopping for your new car this will help you hold the balance of power in negotiating a good deal, so arm yourself with as much information as you can before you go into the dealership.

Also look for items that could cost you money to sort out after you've bought the car, such as  fresh service, MoT or new tyres, and try to get them thrown into the deal.

If a salesman says he is going to speak to his manager about a deal, ask to speak to the manager yourself to negotiate directly with the decision-maker.

And, if you can't strike a deal, be prepared to walk away -- there are always other cars.

More: A Cheaper Way To Get A New Car