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A prudent alternative to dealership finance


Thinking back to the first car that I ever bought - regrettably a Volvo 360 - I admit that I got more than I bargained for. Not considering my finance options better at the time and just going with the flow, it was not until year later that I realised that my not so new car would cost me twice as much as I paid over 5 years and that I already owed more on it than it was worth. The lesson learned was that it seldom pays to take out finance through a dealer, bank loans come with very different rates and if you can get away with borrowing the money, interest free with less rigid terms and penalties from a family member, then you should seriously consider doing so.


If you go to a bank for your loan you will benefit from highly competitive rates. Borrowing from one source is also a lot easier to manage than borrowing from multiple lenders.
At face value, financing a car through a dealer can seem like a great idea as this I likely to be the quickest and easiest method of taking out finance and on occasion, you may even find the unscrupulous dealer filling out the forms for you without asking how you intend to pay.


We compared a number of examples from well known high street banks and found that Alliance & Leicester currently offer the most competitive loans at 6.9% APR.


Applying online is also simple and takes 10 minutes and you could have a decision within the hour so can be as quick as using the dealership. However, unlike the car dealership loan, such personal loans are usually a simple interest loan with no hidden charges.

Car Loans Compared*

New customers taking £7,500 over 60 months

APR Typical Monthly Cost Total Payable Savings
Alliance & Leicester 6.9% £147.55 £8,853.00
-
Lloyds TSB 7.4% £149.23 £8,953.80


£100.80


Abbey 7.9% £150.74 £9,044.40 £191.40
Egg 9.9% £157.57 £9,454.20 £601.20
Black Horse 11.9% £164.57 £9,874.20
£1,021.20

Source of competitor data: Moneyfacts.co.uk - the money search engine 23.07.07

I recommend that you always use a comparison engine such as on Uswitch or www.fool.co.uk in order to compare loans for the best current rates at the time of action as lenders are constantly trying to outdo each other and today's best deal may not be tomorrow's.


If you are able to finance a new car by borrowing from a family member or friend, this is worth considering. So long as you stay true to your word with regards to repayments, this should work out to be a good arrangement with extremely competitive interest rates or interest free, not to mention easy, quick and very flexible terms at times and a far more personalised service that any bank could provide.



 

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