How should you pay for your new car?
September is a busy month for car manufacturers and dealerships, with millions of motorists ordering shiny new vehicles.
But while some of those buying cars this autumn have enough cash to cover the purchase, most will need to borrow at least some of the amount.
Halifax is keen to cash in on this fact by offering customers who take out one of its personal loans to buy a car between now and October 21, a £100 sweetener that can be spent on petrol.
Chris Phillips, head of Halifax personal loans, said: "Buying a car is one of the most common reasons customers take out a personal loan and this offer has been designed with their specific needs in mind."
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But gimmicks of this kind do not always translate into true value for money – and personal loans are far from the only way to finance your new car purchase.
Here, we take a closer look at the various payment options so that you can choose the right one for you.
When comparing personal loans, it is vital to remember that the interest rate charged will have the biggest impact on the overall cost.
While the Halifax offer provides borrowers with a pre-paid fuel card loaded with £100, the fact that the representative APR on between £7,500 and £15,000 over one to seven years is an uncompetitive 8.8% therefore means you could save more elsewhere.
For example, Tesco recently lowered its representative APR on borrowing of between £7,500 and £15,000 to a market leading 5.7% from the previous 5.9% against loan repayment terms of between one and five years. With this cheapest loan on the market, someone opting to borrow £7,500 over the maximum five-year term would pay total interest of £1,108. That's a £617 saving compared to if you had taken the same loan over the same term with Halifax – or still £517 less after you have factored in the £100 petrol perk.
There are plenty of other cheaper options than Halifax too. Derbyshire Building Society also offers personal loans between £7,500 and £15,000 which are repayable over and five years at the slightly higher rate of 5.8%, while Sainsbury's, identical rate comes with a shorter maximum term of three years, and you will also need to be a Nectar card holder.
Remember, though, that the rate you pay will depend on the amount you need to borrow. If you only need a loan of £3,000, for example, you will pay a higher interest rate. The cheapest offer currently available on this amount is from peer-to-peer lender Zopa, which charges a representative APR of 10.1% to borrow £3,000 over five years.
Credit cards offering 0% on purchases for an introductory period can enable you to borrow the money to pay for a car without paying a penny in interest.
Both the Tesco Clubcard Credit Card and the American Express Rewards Credit Card, for example, offer 0% on purchases for the first 16 months, as well as access to rewards schemes.
The Halifax All in One card offers a slightly lower 0% purchase period of 15 months although it's handy if you have credit card debt to transfer as it also offers 15 months on balance transfers for a 3% fee.
You will, however, need to be disciplined about repaying the debt within the 0% period. While Tesco's standard representative APR is a hefty 16.9% (variable), American Express charges a massive 19.9% (variable) once the 0% deal ends, and the Halifax All in One card sits in between the two at 17.9%.
Avoiding interest is not the only reason to use a credit card to fund at least part of a car purchase, though.
Even if you only use a credit card to pay the deposit (of at least £100), you will also receive extra protection not afforded to those using personal loans, finance deals and debit cards.
This is because payments of between £100 and £30,000 are covered by Section 75 of the Consumer Credit Act, which states that card companies are jointly and severally liable should you lose your money – for example, if the dealership goes out of business before you have a chance to pick up your new car. The more recently-introduced Consumer Credit Directive offers further protection up to £60,260 in the same eventualities.
You must remember to watch out for credit card handling fees, however, while it is also worth pointing out that not all dealerships allow you to pay the full amount by credit card.
Dealership finance offers
Most dealerships provide finance agreements, while manufacturers also offer deals on different makes and models.
Peugeot, for example, is currently offering access to a new three-door 107 for as little as £159 a month, including insurance, servicing and car tax during the three-year term.
However, the representative APR on this deal is 9.5%, meaning you could pay hundreds of pounds less by taking out a personal loan from Derbyshire Building Society or Sainsbury's bank.
It is also worth pointing out that the vehicle only becomes yours at the end of the term with these so-called hire purchase deals.
It could therefore be repossessed at any point if you fall behind on your payments, while you will also not be able to sell the car until you have paid the final instalment (even to pay off the loan).
On the flipside, you are more likely to be approved for a dealership finance deal than a low-rate personal loan if you have a low credit score as the finance is secured against the car.
Many people prefer to save up for big-ticket items such as a new car rather than borrowing the money to pay for them.
But even for those with enough savings to cover the purchase in full, it could prove savvier to use a 0% credit card to finance at least some of the transaction.
This is due to both the Section 75 protection mentioned above, and the fact that you could use savings held in an interest-bearing account to clear any remaining debt at the end of the 0% period – thereby allowing you to earn interest for longer.
Using a credit card could also allow savers with money tied up in fixed-rate accounts, for example, to avoid withdrawal penalties.
You must be extremely disciplined to take this approach, though, as just one month paying interest at say 19.9% on several thousand pounds could amount to more than all the interest you have earned (or penalties you have avoided).
Once you have your new car, it is important not to let your hard work finding the right finance deal go to waste by paying over the odds for your insurance.
So ensure you get the best possible value for money on your cover by scouring the market using MoneySupermarket.
Independent research shows that a third of drivers could save £400 a year by comparing policies using the website.