Wrong loans cost new car buyers £2.4K

The cost of a new car with a 58 plate could be £2,400 higher if buyers fail to find the best loan deal.

Research by Moneyfacts.co.uk shows the wrong choice on a car loan could increase the cost of financing a new motor by 14 per cent.

The difference between the best and worst deal on a £5,000 loan is £769 extra in repayments, while for a £10,000 loan it is £2,400.

Michelle Slade, Moneyfacts analyst, said: "At the start of next week the new 58 plates will be rolling off the forecourts and motorists would have likely searched hard to find the best deal.

"However, I suspect much less time and effort is put into finding the best finance deal. Getting the finance choice wrong could prove a costly mistake."

She added: "Before opting for the convenience of forecourt finance, it's worth checking out how this compares with other deals on the market. There are over 40 providers offering a range of unsecured loans and many offer different rates depending on if you apply online or over the telephone."

Tips when shopping for a car loan:

• When shopping around for a new loan, use the total repayment figure to compare deals. This is especially important when opting for providers' insurance, as a competitive interest rate can more than be wiped out by expensive payment protection cover.
• Shop around for your loan, and for the best possible package shop around for your insurance separately. Independent providers such as Paymentcare.co.uk and British Insurance offer a more flexible insurance package at a fraction of the cost.
• 93 per cent of loan rates are either typical pricing or personal pricing, so don't assume that the rate advertised is the rate you will receive, as this will depend on your credit rating.
• Don't be fooled by specialist car loan deals. Often the freebies, discounts or perks don't make economical sense if you have to pay a higher interest rate.
• Be realistic about the term of the loan you choose. Cars suffer rapid depreciation, so make sure that you don't find yourself still paying for your car long after it has reached the scrap yard.
• Be aware of the cost of repayment holidays. For example, if you take a loan of £10,000 over five years at 8.0 per cent APR and took a three month repayment holiday at the commencement of the loan, you would pay an additional £156 in interest charges.

£5,000 over 3 years with insurance

	Provider	Monthly Repayments	Total Cost
Cheapest	Sainsbury's Bank	£176.84	£6,366.24
Most Expensive	Yorkshire/Clydesdale Bank	£198.22	£7,135.92
Difference	-	£21.38	£769.68

£5,000 over 3 years - without insurance

	Provider	Monthly Repayments	Total Cost
Cheapest	Barclaycard	£155.71	£5,605.56
Most Expensive	Black Horse	£175.09	£6,303.24
Difference	-	£19.38	£697.68

£10,000 over 5 years with insurance

	Provider	Monthly Repayments	Total Cost
Cheapest	Barclaycard	£240.20	£14,412.00
Most Expensive	NatWest	£280.57	£16,834.20
Difference	-	£40.37	£2,422.20

£10,000 over 5 years without insurance

	Provider	Monthly Repayments	Total Cost
Cheapest	Sainsbury's Bank	£200.32	£12,019.20
Most Expensive	Coventry BS	£219.35	£13,161.00
Difference	-	£19.03	£1,141.80

(Source: Moneyfacts.co.uk 28.8.08)