Drivers who buy or lease their new car via a finance agreement could be paying more than £1,000 more than necessary, according to new research.
An investigation into the fees associated with finance deals has found that new car buyers who fail to do their homework are being stung with extra fees ranging from up-front arrangement costs to additional mileage charges.
With 2.4 million people spending a total of £37.6 billion on car finance last year, consumers are spending an average of £15,500 each on car finance. However, Admiral Car Finance, which obviously has a vested interest in the subject, found that choosing the wrong deal could cost drivers even more.
According to its calculations failing to shop around in advance for the best deal could see drivers paying an average of £736 more than necessary over four years, although in some extreme cases that could rise to more than £2,000.
However, drivers choosing to make a finance deal with a third party company can find themselves punished by dealers, who are encouraged to sell their own in-house packages to buyers. In cases where dealers apply a fee for not using their own finance house, motorists were found to pay an average of £365, with the highest fee sitting at £495.
If that’s not bad enough, some garages were found to charge buyers an "administration fee". The purpose of this varied between dealerships but included provision of documentation and vehicle preparation, both of which you’d expect to be standard in any car-buying process. The average charge for admin fees found as part of the investigation was £169, with the highest coming in at £199.
And excess mileage charges, which don’t sound too bad on paper were found to potentially add hundreds of pounds to the cost over a four-year deal. Most PCP deals include a mileage allowance - generally between 8,000 and 12,000 miles - with a pence per mile charge for exceeding it. On average this rate is 9.5p per mile, which at just two extra miles a day will add £286 at the end of a four-year deal.
The study also found some far higher rates, with one finance provider charging 20.4ppm on an 8,000-mile-per-year deal. Over four years an extra two miles a day on that deal would cost more than £610.
Scott Cargill, CEO of Admiral Financial Services, said: “Purchasing a car on finance is a popular option for many drivers as it allows them to drive a new or nearly new car and spread the costs over monthly payments rather than having to pay in one go. Where consumers could lose out substantially is if they are hit with additional charges that they simply haven’t budgeted for.
“We’d urge people to shop around before signing up to any financial agreement, as they would for any large purchase, to ensure they’re aware of any restrictions on mileage and car condition charges upfront. Saving a small portion of their budget to cover any additional costs at the end of their contract could also help make sure there are no nasty surprises””
Top tips for buying a car on finance
Know what you are signing up for. Admiral research revealed Brits are confused by industry jargon with 68 per cent unable to identify HP as meaning Hire Purchase. If you’re unsure of what the different finance types are, research them before you head to the garage.Stick to your budget. Work out what you can afford to spend monthly, but don’t forget to factor in costs like car insurance, fuel, road tax, MOTs and servicing – that way you won’t be caught out with unexpected costs.Work out your expected mileage. Think about how far you usually drive in a year and be realistic. Make sure the deal you are signing up for will cover you, paying for excess mileage afterwards will be significantly more expensive.Ask plenty of questions. Ask about additional charges, what they’re for and how much they are upfront if you don’t understand them. The more informed you are before you take out an agreement, the less likely you are to be stung by unexpected charges.Shop around. It might seem time saving to sign up to an agreement straight away but shopping around could save you a considerable amount of money.