Buying a New Car
There are many pros and cons to buying a new car. The biggest turn-off is that in many cases as soon as the new owner drives his pride and joy off the dealer forecourt it tends to drop in value by thousands.ham
That’s because depreciation is at its greatest when a car is new, yet, compared with buying a used-car, you do avoid a lot of hassle, and you’re totally financially protected should anything go wrong with it. And let’s face it, the proud experience of owning a brandnew car is pretty unbeatable as pleasures go! It is said that the purchase of a car is the second most expensive one you’ll make (after buying a house), but as you’ll be spending a lot of time in it, that’s fair enough.
Bear in mind that prestige brands and new models tend to depreciate the least, but don’t forget that models that are being discontinued, and mass-market brands are often more attractively priced, representing better initial value for money.
Depreciation levels out after a car’s third birthday, so if you intend to own the vehicle for longer, the devaluation is not a factor you need worry so much about. If you do eventually sell the car, its value is determined more by its condition, mileage, colour and specification. So go for inoffensive colours such as blues and silvers, avoiding quirky, bright shades of yellow and orange. As for interior design, leopard-skin patterned seats aren’t to everyone’s taste!
So, what sort of outlet should you buy from? With new cars there’s not much choice in this respect, and we would always recommend a franchised dealer, as these offer a more personal face-to-face service, good finance schemes, testdrive facilities and the convenience of part-exchange for your existing car.
WHEN TO BUY?
Did you know that the date you step onto the dealer forecourt can determine the price you pay? The advantage of buying a newly registered car in the busy months of March or September is offset by the unlikelihood of receiving a good discount.
And buying in the slack months of February and August also has its pros and cons. Dealers are more willing to offer discounts in order to keep up their cashflow, even if that means settling for less profit than normal, and are desperate to reduce stock levels in preparation for the imminent, hectic platechange month.
Yet the registration plate influences your new car’s future value. So if you buy a car at the end of August, rather than September, you can expect it to be worth typically £250- £750 less. So make sure any discount you’re given isn’t negated by this.
By the way, you can strike it lucky by shopping at the end of the month – even in March and September. This is because dealers receive lucrative bonuses if they reach the sales targets set by manufacturers. It makes financial sense to the dealer to sell for little or no profit just to earn the bonus if they’re one or two cars short of the monthly target. But there’s no guarantee of this, and you may not want to wait until the end of the month before purchasing the new model you’re desperate to own.
No matter what time of year you buy, it’s important to haggle, but at the same time to be realistic about it – dealers are businessmen trying to earn a living, so they won’t knock 30 percent off, no matter how hard you bargain.
Be polite but firm at all times, and make sure you know exactly what you want before you walk into a showroom. Seasonal incentives such as cashback offers, free optional extras and free insurance are great, but they’re available to everyone, so don’t forget to ask for a discount in addition.
Remember, you can always take your business elsewhere if they’re not keen to play, in fact it’s important to shop around anyway. Never be afraid to ask for a discount, because dealers want to sell every bit as much as you want to buy.
When finalising the deal, make sure you get a good offer on your old car. You may get a better price if you sell it through the classifieds, but do you want the hassle? Part exchange value all comes down to the ‘cost to change’ figure, which is the dealer’s best price for your existing car, subtracted from the dealer’s best price for the new car. Use the phrase ‘cost to change’ and you should immediately be recognised as a serious, clued-up buyer.
When it comes to financing the deal, unsecured personal loans and hire purchase tend to be the most popular. However, in recent years more flexible repayment plans, such as Personal Contract Plans (PCPs), have become apparent. Take a look at the following at-a-glance breakdown of the pros and cons of different types of finance, then make up your mind which best suits your purpose.
Dealers’ financing schemes can be quite costly, but they offer definite advantages, the most obvious of which is that the salesman will sort everything out for you – so they’re dead easy. Also, you’ll often find competitive deals offered through the carmakers and their dealers, and it’s sometimes possible to negotiate extras on the car you’re buying, as a conditiong of accepting the finance agreement. As this sort of finance is secured, it’s easier to obtain larger loans, but as the car isn’t yours until the very last payment is made, any default on repayments can lead to repossession.
A specific car loan can provide additional benefits such as discounted breakdown insurance or motor insurance cover, and it tends to be easier to obtain than a personal loan. But it may be secured against the car, and as with dealer finance you’re not the owner until you’ve made the very last payment, so dropped repayments can lead to repossession.
HIRE PURCHASE (HP)
This is usually easier to arrange than a car loan, and it can be one of the cheapest financing options. Often HP is a good choice if it’s proving difficult to be accepted for a loan, but remember that as you don’t personally own the car until the HP term is over, repossession is a threat in the event of defaulting on repayments.
Shopping around for a personal loan will often lead you to a lower APR (Annual Percentage Rate) than you’ll get with dealer finance. You have complete freedom in terms of the choice of make and type of car, and as the loan isn’t secured against the car, there’s no risk of it being repossessed if things go wrong. But you may need to provide other loan security – typically a charge against the value of your house – and this type of loan may prove more difficult to obtain than dealer finance.
PERSONAL CONTRACT PURCHASE (PCP)
Now, this is a clever one. A PCP can be a very attractive option for someone who can’t otherwise afford to buy a car – even with finance. It allows significantly smaller monthly payments than other types of finance, and is very flexible in payment terms and deposit size, although one disadvantage is that you must pay a much larger than usual deposit. It’s particularly suited to those who often like to upgrade their car, and it works like this.
You pay a deposit of 10 or 20 percent of the car’s price, and agree the car’s future worth at the end of the PCP agreement (usually three years). This is the Guaranteed Future Value (GFV) and can be as much as 40 per cent of the car’s price. With the deposit and GFV deducted from the full price, monthly repayments are calculated on what’s left (plus interest on that and the GFV). That’s why repayments are smaller than with other finance types.
You lease the car for the three years, after which you either pay the GFV to own the car outright, or you hand it back and start a new PCP on another. Watch out as there may also be an option-topurchase fee.
PCP is very convenient, and a means to an end, but whether you keep or hand back the car, it is without doubt the costly option.
One last thing before you drive your acquisition off the forecourt. Even though it’s a new car, you should check that all the electrics work, that the bodywork is free of dents and scratches (and even rust – some new cars can be stored for weeks or months in coastal pounds before making their way to dealers) and that the car manual and service book, road-tax disc and spare wheel and tools are all present. In the unlikely event of any disputes, carrying out these checks at the start will put you in a stronger legal position.
Following our simple tips could save you a handful of cash, allowing you to splash out on the optional extras you’d really like, or maybe even going towards funding your next new car.