Advice for choosing a car loan

With the new '07' car registration plates set to be unveiled on March 1st, prospective car buyers have been treated to further advice when it comes to choosing the right loan.

Michelle Slade, an analyst at moneyfacts.co.uk, said that opting for forecourt finance could be a costly mistake and that the personal loan market was incredibly competitive, with some great deals to be found charging around six to seven per cent APR.

With a five-year loan of £10,000, an interest rate of ten per cent would lead to total interest costs of £2,622, but at six per cent APR, costs would equal £1,555, potentially saving £1,066, she explained, which could pay for extras such as a climate pack or a spoiler.

However, buyers should bear in mind that 85 per cent of loans use typical pricing so the rate advertised may not be the actual rate a borrower pays, something usually determined by their credit rate, she said.

Ms Slade commented: "Taking any form of personal lending is a long term commitment, and in the case of personal loans is normally at a fixed monthly premium.

"It can be inflexible with only a few providers allowing repayment holidays and most charging early redemption fees. Remember, cars depreciate in value at a rapid rate, so bear this in mind when choosing how long you repay the loan over. Don't let your loan outlive your car!"

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