FOOL'S EYE VIEW
How To Save £5,000 On Your Car

By Cliff D'Arcy
August 3, 2004

First things first: I haven't driven a car since January 1999 (5½ years ago), so why on earth would you listen to my advice on buying one? Well, I've spent a fair part of the last fifteen years working with or for many of the UK's biggest motor finance companies, so I have some inside knowledge of the economics of the motor industry. Oh, and for the record, I saved my wife close to £5,000 in a dealership less than a fortnight ago!

Here are some things to bear in mind when you're out cruising for a new car:

(I've referred to a salesman throughout this article, although there are a growing number of car saleswomen.)

Don't pay list price

Rule One is shop around every time. Before you call or visit a local dealership, make sure that you've done a few hours of research first. That's because the car industry's favourite customers are those people who are prepared to pay the full list price without haggling. By paying the full price, you've made several people you barely know (including the salesman) very happy!

On the other hand, some patient haggling goes a long way. One way to enter into the spirit of haggling is to imagine that you're having a tug of war with the salesman. He wants you to pay close to the full price, whereas you want to cut his profit margin to zero. Inevitably, you'll settle somewhere in between. Furthermore, avoid revealing to the salesman how much you have to spend, because he's certain to find something for you that's right at the top of your budget!

These two questions may help to speed things up:

1. "What's the lowest price that you'll let this car go for today?" - if the dealer can see that you're a genuine - and keen - customer, he won't want to let you leave without making the sale. Also, offering to pay cash on the day often conjures up deeper discounts (see the section on finance below).

2. "Massive Motors [a local rival] has offered me £2,000 off the list price. How much more can you save me?" - salesmen are fiercely competitive and hate to lose out to their rivals. Playing several dealers off against each other is one of the most effective ways to secure a decent discount, especially at a time of year when business is slow.

What's more, a visit to these discount websites should save you time and shoe leather: Autobytel - Auto Trader - Dixon Motors - Drivethedeal - Jamjar - Motorpoint - New Car Discount - Oneswoop - Trade Sales - Virgin Cars. For example, Drivethedeal came up with a £2,500 discount on the car my wife fancied. In addition, try What Car's Target Price (or telephone 0845 123 2620), which guarantees to find you a fair discount on any list price, typically around £1,200.

If you can't get a deep discount off the list price (and at least a tenth off), make sure you get a few extras thrown in at no extra cost. Also, make sure that you're being quoted the 'on the road' price, including VAT, Vehicle Excise Duty (Road Fund Licence), number plates, delivery, a full tank of fuel and so on.

Finally, watch out for dealer extended warranties, which can be just as over-priced as those sold in high-street electrical stores!

Buy a nearly new car

Another way to save money is to buy a nearly new or ex-demonstrator vehicle. These are usually under a year old and typically have fewer than ten thousand miles on the clock. Since you're not buying a new car, you get a discount for depreciation (wear and tear), and because you're not the first registered owner. Buying nearly new can save you upwards of a quarter off the list price of a new car.

Watch out for depreciation

It's not pleasant to spend £15,000 on a new car, only to find that it's worth only £10,000 a year later, but that's life. Depreciation- a discount for wear and tear - varies enormously between car makes and models, but the value of almost all cars falls over time. Expect your new car to lose up to a third of its value over one year, and around half over three.

According to one report, depreciation costs the average car owner almost £200 a month, whether you drive the thing or not! For the record, upmarket German marques, compact executive cars and 4x4s hold their values well. So, if you're going to be a smarter buyer, check the depreciation history of the car you're buying. Otherwise, you could be in for a shock a few years down the line!

Find cheaper finance

Of course, paying by cash is probably the best way to avoid being charged a mountain of interest when buying a car. However, few people have £10,000 or so lying around earning interest, which explains why many of us are forced to rely on finance.

However, there's little point in doing your homework to save a tidy sum on the car of your dreams, only to blindly rush into arranging finance through a dealership. Get it wrong and you could add £2,000+ to the cost of your car!

If the APR (annual percentage rate) on offer in the dealership comes to more than about 7% APR, you should save money by arranging a Best Buy personal loan before going shopping. Here's a great article on paying less for your loan. Then again, if you're not bothered about owning your car, here's an article that explains some of the alternatives.

May you enjoy many years of trouble-free motoring!

More: Find a bargain personal loan | Get cheaper car insurance.