FOOL'S EYE VIEW
More Car For Less Cash

By Cliff D'Arcy
February 26, 2004

The new round of car registrations begins on 1 March, so you'll start seeing '04' plates from next Monday. When I see someone driving a flash new car, my mind often goes down the following route:

"Ooh, that's a nice, shiny, new [Audi TT, BMW 7 Series, Jaguar, Mercedes S-Class or whatever]."

"I wonder how much that set you back (did you haggle, or pay the list price without a fuss)?"

"How hefty is the nice, shiny, new loan that paid for it?"

Although I'm as much an admirer of classy performance cars as the next person, I'll probably never drive one. That's because:

• I'm a truly awful driver, despite passing my driving test at the first attempt. My advice would be never to climb into a car if I were behind the wheel (not that there's much chance of that happening, as I haven't driven for over four years)!
• I couldn't bear to part with, say, £30,000, for something that will depreciate in value (be worth less from day one onwards).
• I'm a committed environmentalist - not quite in the digging-tunnels-and climbing-trees-eco-warrior league, but I fret about my personal contribution to pollution. Also, I'm lucky enough to live in an area with good public-transport links.

On the other hand, if you have plans to buy a new or used car in the near future, read these tips on getting 'more motor for less loot' (think Frank Butcher, the car dealer who was once an Eastenders regular)!

1. NEVER pay the list price!

Many Brits dislike haggling, often because they don't know how to go about negotiating a decent discount. However, you should remember that the advertised price is the maximum you could pay. View it purely as a starting point for bargaining, because dealers expect you to ask for a discount.

Once you've decided which make and model you want, find the best online price from the following dealer and broker websites, then ring or visit a local dealer or car supermarket to see if it can beat your best price:

Autobytel	Auto Trader	Dixon Motors	Drivethedeal	Jamjar
Motorpoint	Oneswoop	Showroom4cars	Trade Sales	Virgin Cars

Also, check out What Car's Target Price (or telephone 0845 123 2620) - it guarantees to find you a fair discount on any list price, typically around £1,200.

Furthermore, watch out for these old sales tricks and nonsense:

• Salespeople who say, "I can't do the deal at that price, I'll need my manager's approval". This is the oldest trick in the book, so ask to speak to the manager to save time and messing around.
• Discounts that are 'only available today' - if they conjure up a deal today, it'll still be there tomorrow. If they're desperate, tomorrow's deal could be even better!
• Don't sacrifice a discount in return for cheap finance, because this is usually a false economy. If 0% finance is on offer, this shouldn't stop you getting a decent discount as well.

2. Shop around for finance

There's absolutely no point in shopping around for your car and then celebrating by signing the first finance agreement that the dealer shoves under your nose. Many car dealers exploit the public's lack of knowledge about financial matters by over-charging for car finance.

One sneaky trick that dealers use is to talk about 'flat' interest rates, for example, '6% flat'. Don't make the mistake of thinking that this is the same as 6% APR, because it isn't! In fact, a simple way to guess the APR is to double the flat rate and knock off ½%. So, 6% flat is roughly equal to an APR of 11.5%, which is way over the odds!

Dealers are required by law to display the APR prominently, so insist on seeing it every time.

[For the mathematically minded, here's a worked example: You borrow £5,000 over three years at '6% flat'. Your interest bill is 6% times £5,000 times three years = 0.06 x 5,000 x 3 = £900. So, you pay back £5,900 over three years, which comes to £163.89 a month. That's an APR of 11.6%.]

You should use the same rules when shopping around for car finance as you would with any other loan. Here are some tips on finding cheaper deals:

1. Shop around, because competition for borrowers is pretty fierce. You'll find several of the Best Buys in our Personal Loan Centre.
2. Always check the Total Amount Repayable (TAR), which is what you will have to repay, right down to the last penny. Choose the loan with the lowest TAR over your timescale, which will always be the best deal.
3. Don't buy optional loan payment protection insurance. This is a hugely expensive way to protect your monthly repayments against death, accident, sickness and unemployment. Because it's around five times as expensive as it should be, lenders make billions from this product, so expect to have it forced down your throat!
4. When you're quoted a 'typical APR', you should be aware that you're likely to pay a much higher rate unless you have an absolutely first-class credit rating.
5. Watch out for arrangement fees - dealers have a particular fondness for adding assorted administration and documentation fees to their finance agreements.
6. Ignore gimmicks such as payment holidays or repayment breaks, as you'll pay for the privilege.
7. Beware of early repayment charges – some lenders penalise you heavily if you pay off your loan early.

Here's a great article on finding cheap personal loans.

Incidentally, be wary of personal contract purchase (PCP) agreements. These are a type of hire-purchase contract where you have three options at the end of your agreement:

1. Return the car to the dealer, owing nothing.
2. Pay a final 'balloon' payment to own the car.
3. Part-exchange your car for another, after settling the existing finance costs (if your car is worth more than the balloon payment).

On the surface, PCPs appear to allow you to buy a higher-specification car. However, unless you stump up the balloon payment at the end of the agreement, you never own the car. Also, APRs on PCP deals look very low, but this is simply because a big chunk of money (the balloon) is deferred without interest being charged. In reality, most PCP deals charge higher interest rates than the cheapest personal loans.

We'll explain more about PCPs in a future article. For now, our advice would be tread carefully, and don't sign up to a PCP agreement unless you fully understand what you're getting into.

3. Watch out for depreciation

Thanks to depreciation, the make and model you choose will greatly affect your car's future value. With very few exceptions, cars fall in value as they age. Most new cars lose a third of their value in the first year and are worth roughly half their original price after three years.

In fact, depreciation costs the typical motorist almost £2,200 a year, whether the car is driven or not. Note that prestige German marques, compact executive cars and 4X4s hold their value best. Here are some tips on minimising depreciation from Alliance & Leicester.

More: Visit our Insurance and Personal Loan Centres | The Fool's Car-Buying Guide.