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 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. Though interest rates are on the rise, rates for personal loans are still among the lowest for finance - about 6.5%. 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 interest rate on your home loan could well be lower than those for personal loans. More than likely if yours is a discount mortgage or was fixed at an earlier, lower rate. 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. On the downside, if at some point you can't afford your new extended mortgage, then its not the car but your house that's at risk.
Finally, it's always worth talking to the car dealer about what finance they can offer. As the salesperson most likely will get extra commission for signing you up to finance, in return you should expect a more generous discount on the car you want to buy. But make sure the finance is competitive with other sources. If not, try haggling over the interest rate just as hard as you haggled over the price of the car.
