How to save money when buying a car

young woman shaking hands with a car dealer in a car showroom

The average price of a new car is now an astonishing £27,219. But wait. Don't just hand over half the average UK salary, because you can save money when buying a car. In fact, you can save thousands of pounds - without making any sacrifices. All you need are our ten tips on saving money on your new car purchase.

1. Start with the financing
Unless you have the cash up-front, one of the best ways to cut the cost of a new car is to find the financing that works for you. You'll need to do this before you go anywhere near the showroom if you want to secure the best deal.

If you have a good credit rating then the cheapest option is usually to shop around for a competitive personal loan. At the moment, you can borrow £25,000 for up to five years at as little as 4%. This will end up costing you £2,624.78 over the life of the loan.

2. Consider hire purchase
If you don't have a good credit rating, then you will not be able to get such a competitive loan, in which case you need to investigate hire purchase deals arranged by dealerships. These spread the cost over anywhere between one and five years. You are usually expected to put down a 10% deposit, and then pay a reasonably competitive rate for the period, and on the day you make the final payment the car is yours.

In some instances this interest is negotiable, so it's worth pushing your dealer to see if they can knock something off the APR. Finally, it's worth weighing up the cost against the kind of personal loan you can get, but if you have a poor credit rating it can work out in your favour.

3. Be very wary of personal contract plans
In these you pay a 10% deposit, and monthly payments for between 1 and 3 years. At the end you can choose to either hand the car back to the dealership and pay nothing, or stump up the difference between the sale price and the price for resale and keep the car.

They are attractive to many people because of the lower monthly payments. However, they tend to be more expensive than the hire purchase deals or loans in the long run.

4. Check out special offers on financing
If the manufacturer or dealer is keen to shift a model, they may offer interest-free loans to help you buy them. This is worth a closer look. You will need a larger deposit than you would need if you were to buy through other financing - around 35% is common - you will also need to ensure you never miss a payment or you will be switched to a higher interest rate. Then you need to factor in the fact that you are highly unlikely to get any kind of discount on the car if you take the 0% finance deal. It comes down to whether you can save more than £2,624,78 by haggling and negotiation.

However, you don't need to make this choice immediately. You can have the 0% deal in your back pocket if your haggling cannot save you more.

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5. Do your research
One of the cheapest ways to buy is through an online broker - because they buy in bulk and pass some of the saving on to buyers. If you are happy buying through a broker it can be a useful way to secure a great deal. However, if you would rather buy a car you have had the chance to see, you can at least make a note of the price on offer, and see if you can match this - or get a better deal.
6. Check for manufacturer discounts
Discounts can come in two forms on new cars - the manufacture-backed discount and the dealer's margin. It's worth trying to find a dealership offering a discount in adverts and on their website because this usually comes from the manufacturer. It means you will still be able to haggle in order to get the dealer to reduce their margin.

7. Time your purchase
Most dealerships work on a commission basis, and salespeople will earn bonuses if they hit targets each month and every quarter. If you time your purchase at the end of the quarter - especially a quarter in which sales are traditionally sluggish - then they will be keen to get a sale and more willing to do a deal. It means the best times to buy are at the end of March and December. It's also worth going on at 10am on a Monday - which is usually after the weekly sales meeting.

8. Negotiate before discussing financing
Dealerships make a fortune on most car financing, so if you are paying in cash, try to haggle on price before declining the financing - so they don't factor in the fact they won't make any money on financing.

If you are going to take the finance package, you can let the dealership know, but don't let them negotiate on the monthly cost. In some cases they will simply stretch the loan over a longer period so they can quote a lower monthly cost - which will end up costing you more in interest.

9. Start negotiations positively
Before you start, you need to be polite but not over-friendly with the salesperson: they really won't offer you a special deal if they like you, and if you get too friendly you may back out of more difficult negotiations. You should also know your target price (slightly below the online broker price).

Then get the dealer to make you an offer by saying 'How much discount can you give me?' If they are immediately negative, and you cannot get any movement, close down the negotiations and walk away. You will find someone willing to give you a better deal - and you still have the broker as a fallback solution.

10. Set the speed of negotiations yourself
Once they have come up with an offer, take your time and counter with an offer below your target price. If they take their time coming back to you (or go away to check with the office) then let them take all the time they need: in some cases they are using tactics to try to make you feel nervous. Wait for their response, then take your time to answer - without going over your target price.

If they come down sufficiently, and you feel you are within striking distance of a deal, offer to close the deal and shake their hand on a specific figure. Psychologically this will predispose them to accepting your offer.

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