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cutting your car costs

car finance guide

Getting a loan is a convenient way to spread your costs or raise cash for a large purchase like a car. But don't under-estimate how expensive it is. The monthly payment mightn't look much but the total amount you end up paying back over the course of the loan can be thousands more than the price of the car you've bought.

To save a packet it's best by far to try to avoid finance all together - consider getting a cheaper car instead, and pay for it up-front. But reality is, few of us have the sort of cash it takes to buy a decent car just sitting around.

So if finance is a necessity, the golden rule is not to judge the deal by the monthly payment, but the total amount you'll end up paying over the period of the loan.

You'll often find the best deal can be had with a personal loan from a bank, building society or other provider. You'll need no deposit or money up-front and you'll get fixed payments over a fixed term. What's more, the car's yours from the start. And if you set the loan up in advance you have the advantages of being a cash buyer when you're car shopping.

Same goes for extending or drawing down money from your mortgage. The the interest rate on your home loan could well be lower than those for personal loans. But getting your mortgage provider to agree to an extension can be trickier than getting a personal loan. If your mortgage is on your provider's standard interest rate, then you might find a personal loan is cheaper, or at least there's very little between rates. But care is needed because if at some point you can't afford your new higher monthly mortgage payments, then it's not the car that's at risk but your house.

Finally, it's always worth talking to the car dealer about what finance they can offer. While the headline finance deal may not be the most competitive on offer, the salesperson will most likely get extra commission for signing you up to finance so, in return, you should expect a more generous discount on the car you want to buy. But make sure that one-off discount isn't eaten up by higher payments over the long term. Try haggling over the interest rate just as hard as you haggled over the price of the car.

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