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Almost half of those who borrow money to buy a car choose an uncompetitive finance deal that could leave their finances exhausted, and drivers fuming. 

Almost one in five (18 per cent) of car owners typically used finance from a car dealer to purchase their car last year with four in ten (38 per cent) of those claiming it was for reasons of convenience.  

Despite many car dealers’ interest rates set well into double figures, one quarter (24 per cent) of borrowers believe that the finance deals offered by car salesmen are the most competitive available. A further six per cent admit to signing up after a salesman convinced them that their finance was the best deal available.

UK motorists would set to waste almost £174 million by signing up to car dealer finance when they buy their new ‘08’ registration cars in March, following the sale of more than 2.4 million cars last year. 

A motorist borrowing £10,270 towards the cost of one of Britain’s best selling cars, the VW Golf (costing £11,411 on the road with a £1,141 deposit), would pay 9.4 per cent APR through a finance deal. That’s £2,162 in interest over three years.  

However, financing the purchase with a personal loan with a typical APR of 6.7 per cent, the total amount paid in interest would be £1,068 – a saving of £1,094.

Over one in five (21 per cent) of all unsecured personal loans are for new or second hand cars. There is a multitude of deals available to prospective buyers, not least from banks and building societies as well as car dealers themselves. It's important you consider a number of factors before choosing your finance deal. 

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 our analysis shows that dealers charge up to 11.8 per cent APR.  

Some car dealers offer zero per cent finance on new cars, these deals are definitely worth considering if you can get one, however you may have to pay a hefty deposit though.  

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.  

Car dealer finance is not the only way new car buyers can lose out – depreciation is also a big factor to consider as some new cars can lose anything up to 58 per cent of their value in the first year alone. While it is better to shop around for a personal loan in order to get your new car, saving a small deposit could save you thousands in the long run.

The author of this loans article is Mel Varley.

This article does not represent ‘financial advice’ as everybody's individual requirements are unique to their own needs. If there is something in the article above that you want to rely on then please check the details with the person from whom you purchase any product or service.

The views in this article represent those of the author and not of Netbasic Limited.