New Cars

New cars are always attractive – everyone likes a vehicle that is all yours and has not been owned by anyone else before. But how should you finance the purchase of new cars?

A personal loan is now the most popular way to borrow money for the purchase of new cars. Over 25% of buyers take out this type of loan for new cars regardless of whether they are trading in or trading up to something newer.

our best loans
loan provider typical APR max loan term range 1 Sterling Credit 7.6% £75,000 3-25 yrs 2 First Plus 7.9% £100,000 5-25 yrs 3 Picture 8.4% £100,000 10-25 yrs 4 Nemo 10.9% £100,000 5-25 yrs 5 Paragon 11.3% £150,000 5-25 yrs

Getting finance from a dealership is often very appealing for new cars because it is quick and easy. However, a Hire Purchase (HP) deal has some serious drawbacks when compared to taking out a loan:

• A HP deal is not flexible - you cannot sell the vehicle on until the loan is repaid, or at least you will face hefty fines.
• The vehicle belongs to the HP provider until you have made your last payment. Therefore, if you default on your payments the HP provider can reclaim the vehicle.
• Although the monthly payments of a HP deal for a loan on new cars may look lower the average dealer finance interest rate is 12.9% taking into account all the costs.

You can now get a separate loan online for new cars from less than 6% so it is much cheaper than the average dealership. A HP deal may be easier but it is expensive. You can also sell the new cars when you want, even before you have finished paying your loan.

The secret is in the deposit for new cars. Take for example a VW Golf costing £15,000. With a 30% deposit (£3,000) the monthly payments on a HP deal at 12.9% APR over 5 years would be £268, with the total payable being £16,087. By contrast, if you borrow £15,000 on a separate loan you would be paying £288 per month over 5 years (6.0% APR). Therefore the £268 looks very respectable.

Think about it though. Because of the deposit you are actually only borrowing £12,000 with the HP deal – if you took out a separate loan for £12,000 the monthly payment at 6% over 5 years would be £231 with the total payable being £13,867. The HP deal for new cars from the showroom appears attractive but it is only because of the way it is presented – you can save money by taking out a separate loan for new cars, in this case £2,220.

Another big advantage of getting a separate loan to your vehicle purchase is that it essentially makes you a cash buyer. You therefore have more scope to haggle over the price of new cars.

The message is clear – get your finances sorted out before you hit the showroom for new cars. Shop around for the best loan.

Scroll to the top of the page to view the best new cars loans provided by Myloanchoices.