Did you know that your car probably costs nearly as much as your mortgage each month? At £511 a month, the average cost of insurance, petrol, parking, servicing, breakdown cover, depreciation and finance payments is just £68 lower than the typical mortgage, according to research by Direct Line.
Although motoring costs have risen by 56% in the past 20 years, three-quarters of us now own a car and some 400,000 people are expected to buy new cars with the latest 2006 registrations this month, says Sarah Modlock on the Yahoo Finance webite.
Then one in four drivers will sign up to the dealer’s finance (paying an average £1,735 in interest and charges) even though the annual interest rate at the showroom is usually about 13% – more than double the typical rate for a personal loan. It would be better to scour comparison websites to avoid paying over the odds.
Alternatively, the dealer might try to sell you a “personal contract purchase” scheme. You pay a deposit and then part of the debt is deferred until the end of the deal term – usually three years, says Jo Thornhill in The Mail on Sunday.
The monthly repayments are based on the remaining portion of the car’s value, so they should work out cheaper than an ordinary loan. At the end of the three years, you have three options: pay off the deferred portion of the loan and keep the car; hand back the vehicle; or trade in the car for a new model using the deferred amount as a deposit.
Insurance is the next big expense – and again you can search for good deals on the internet. You might even get a 10%-20% discount if you buy online. However, you should look beyond the special offer and find the best long-term deal.
A 44-year-old man living in London and driving a BMW Z3 would pay £475.67 with More Than, according to the comparison website Insurancewide.com. And although the Post Office is offering £50 cashback to new customers, it would charge the same driver a premium of £632.85, even with the cashback, says Emma Lunn in The Sunday Times. Also, be careful if you decide to pay your car insurance by monthly instalments; some insurers levy an annual percentage rate of 20% or more on monthly payments.
Finally, make sure your insurance covers any expensive equipment in your car, such as satellite navigation, in-car DVD and speed-camera detector equipment. Some insurers might only cover equipment worth up to £750.