FOOL'S EYE VIEW
Tremendous Tips For Motorists!

By Cliff D'Arcy
February 17, 2005

First things first: I've never bought a car, nor have I driven one for at least six years!

So, why on earth would you listen to my advice on buying cars? Firstly, because I negotiated big discounts on my wife's last two purchases. Secondly, I spent around a decade working with many of the UK's leading motor-finance firms, so I've walked the walk and talked the talk!

Today, I'm going to show you how to reduce the one-off and ongoing costs of buying a new (or used) car. So, if you've got your eye on a new "05 registration" next month, pay attention!

Of course, buying the car itself is normally your biggest outlay. However, before you buy, ask yourself the following crucial question:

Do I want to own this car?

If you prefer to replace your car every, say, three years, then you may be better off not buying it. Here's a list of finance options, together with their pros and cons:

Financing a car
Type of finance	Pros	Cons
Cash	Can negotiate substantial discount from list price. Don't pay any interest.	Can take a long time to save up. Lose savings interest.
Personal loan	Own the car from day one. Usually the lowest interest bill - and can haggle.	Watch out for expensive payment protection insurance.
Increase mortgage	Cheap way to raise funds. Easy with flexible or current account mortgages.	Not an option that we'd recommend, because you put your house on the line!
Dealer finance, 0% deals and manufacturer special offers	Convenient (but convenience always costs).	Taking 0% or low-cost finance makes haggling on price difficult.
Hire-purchase	Can return the car after paying up to half of the cost. Can pursue the finance company if car is faulty.	Don't own the car until all payments have been made. Interest rates and fees are often steep.
Personal leasing or personal contract hire	A two- to four-year hiring agreement with mileage limit. Small deposit, plus low monthly rentals that include servicing costs and road tax.	You never own the car. Exceeding the agreed mileage is pricey.
Personal contract purchase (PCP)	Good for people who change their car often. Lower monthly repayments than HP or personal loan. Don't have to buy the car at the end of the deal.	APRs appear low, but interest bills are higher than HP or personal loan. Need to stump up a big final payment to own the car.

To summarise: if you want to own a car, cash or a personal loan is usually the cheapest option, because dealer finance is often too expensive or too complicated to understand! On the other hand, if you want to drive a flash car but pay low monthly rentals, a personal leasing or personal contract purchase deal may be right up your street. Learn more about your options in Nifty Ways To Finance A Car.

By the way, if you get a loan from your bank or finance from a car dealer, The Automobile Association reckons that you could end up paying up to £2,000 extra interest than with a Best Buy loan!

Check out the great rates in our Personal Loan centre.

Laugh at the list price!

Remember: the list price is purely the "top" price, not the "right" price! Demanding a better deal – negotiating – could win you a discount of between a tenth (10%) and a third (33%) off the list price. Alternatively, check out How To Save £5,000 On Your Car, which shows you how to get bigger discounts by asking the right questions, shopping around online and haggling!

Beware of depreciation!

Whether you decide to own a car or not, it will fall in value as it ages, which is known as depreciation. Depreciation has a huge impact on your car's future value, and depends largely on its make and model. Typically, you can expect a new car to lose around three-fifths (60%) of its value in its first three years. Sadly, depreciation costs the average car owner around £2,000 a year – whether the car is driven or not!

Your car will hold its value better if you keep it in good condition and have a low annual mileage. Also, avoid wild or unusual colours, because these reduce the desirability of your car to buyers. Remember, what you may find funky, others may find frightful! So, before buying, check the depreciation rate of the model you're planning to buy, because it could come as a shock further down the line. Learn more about depreciation here.

Avoid the add-ons!

Car dealers don't stop at selling cars. They also sell a whole host of financial products, too – several of which provide greater sales commissions than the car itself! And of course, what's good for the salesman is bad for the buyer!

So, avoid buying the following products, unless you enjoy being taken to the cleaners:

• Dealer finance – unless it's definitely cheaper than a Best Buy loan (see above).
• Payment protection insurance – breathtakingly overpriced and widely mis-sold, this life, accident, sickness and unemployment cover takes the proverbial biscuit! Learn more here.
• Extended warranties – just like shop-bought warranties for household goods, dealer warranties are hugely overpriced, thanks to their in-built profit margins.
• Motor insurance – offers of "free" insurance usually come with strings attached and often handicap your negotiations to reduce the price.
• GAP insurance – if your car is written off, your motor insurer's payout may not be large enough to pay off your finance agreement. GAP insurance covers the difference. This product is fiendishly difficult for consumers to understand and value, so dealers charge top whack for it!
• Breakdown cover – a new generation of providers are taking on the traditional players (The AA, RAC and Green Flag). Again, it's best to shop around for lower premiums.

Here are seven ways to lower your motor insurance premiums (the eighth being visit our Insurance centre, because you could cut your premium by a third!) Of course, it's far better never to make a claim, so check out these tips on preventing theft and other vehicle crime and improving your driving skills and driving more efficiently (towards the end).

Visit our Insurance centre for cheaper motor insurance and breakdown cover.

Reduce your running costs!

Fuel accounts for a huge slice of the cost of running a car, largely because duty makes up almost three-quarters of the price of unleaded petrol and diesel (73% and 72% respectively). Hence, our diesel prices are the highest in Europe and our petrol prices are the third highest. We buy 33 billion litres of fuel a year, costing around £27 billion, of which the government takes £19 billion. Yikes!

It pays to shop around for fuel, because a 5p-a-litre saving could save you up to £3 every time that you fill up. Sadly, the AA Petrolbusters website closed down in December and I don't know of another site that provides similar data. However, it's worth shopping around for fuel and filling up whenever you're near your cheapest local forecourt.

Alternatively, converting a petrol-fuelled car to liquid petroleum gas (LPG) can almost halve your fuel bills, as a taxi driver recently informed me. It's not difficult or complicated to do and there are grants available for certain vehicles (£700 for cars; £800 for vans), plus a reduced - or even zero - Congestion Charge in London.

The best news, however, is that LPG costs about 40p a litre and conversion can pay for itself within a year for many drivers. What's more, LPG is more environmentally friendly than petrol or diesel. Top Gear presenter Richard Hammond is an LPG fan, as is Fifth Gear presenter Quentin Willson. LPG: it means "Less Petrol Gulped"!

More good news: as this article explains, since October 2003, you are no longer tied to a single dealer or manufacturer group. Therefore, you can take advantage of competition to get a better deal on servicing, parts, repairs, tyres and exhausts. So, you can shop around for lower prices without compromising on quality.

Of course, switching to a smaller car can seriously slash your motoring expenses. Do you really need that huge 4x4 to drive your kids to school and back, especially when you don't live on a farm or in the countryside?

Finally, if you spend a king's ransom on motoring, why not get some of this money back? By using a cashback card, you can get receive up to £20 for every £1,000 that you spend. We have a deck of cashback cards in our Credit Card centre.

More: Get cheaper personal loans, motor insurance and a cashback card