Sales of new cars are plunging as the credit crunch tightens its grip on household finances.
The number of new car sales dropped to 112,087 in January, according to the Society of Motor Manufacturers and Traders - a fall of 30.9% on the previous year. But are drivers right to resist the urge to buy a new motor when the '09 registration plates hit the showrooms at the start of March?
The cost of a new car is one reason to steer clear of the forecourts this month. You could, for example, expect to pay about £14,000 for a brand new five-door Golf hatchback. If you were happy to settle for a secondhand car, you could pick up a similar five-year-old Golf for about £4,600. And who wouldn't jump at the chance to save nearly £10,000?
Lending is expensive
Finance for a new car is also expensive. Let's say you are sensible and arrange your own car loan instead of signing up to the dealer's finance. You could still expect to pay interest of 9.5% on a £15,000 loan, up from 8.1% a year ago and from 7.3% in June 2007.
Today's best deals on personal loans
The higher rate makes a big difference to the cost of a car. If you borrowed £15,000 over five years at 7.3%, you would pay total interest of £2,849.36. At 9.5%, the total interest would be £3,730.53.
Michelle Slade, analyst at Moneyfacts.co.uk, said: "Rising unemployment and a declining economic outlook have meant the risk of customers defaulting on unsecured lending has increased. As a result, borrowers are paying a significantly increased rate than they were 18 months ago. Base rate may be at a historically low level, but anyone needing a personal loan has seen no benefit."
The typical interest rate for a smaller loan of £5,000 is higher at 12%, but you would pay less in overall interest. A £5,000 loan over three years would cost £925.97 in interest.
Buying a new car certainly isn't a good investment. Would you buy a house or invest in stocks if you knew they would immediately plunge in value? Well, that's what happens to cars. The minute you drive your vehicle off the forecourt it is no longer new and can depreciate in value by between 20% and 30%. After three years, it might be worth half the sale price. Remember the Golf hatchback at £14,000? After three years it would be worth about £7,490.
Best-value new cars
Small cars have held their value better than big luxury models, according to the latest Parker's Annual Depreciation report. The Toyota Aygo lost £1,515 over 2008, less than any other vehicle.
The Citroen C1 and the Peugeot 107 also stood up well as demand for cost-efficient cars grew. But the values of some luxury models by the likes of Bentley, Daimler and Aston Martin crashed though the floor.
The latest Car Purchase Index (CPI) by AA Personal Loans shows that consumers are now two-thirds more likely to spend their money on a second hand or ex-demonstration car than a brand new model.
Mark Huggins, the head of AA personal loans, said: "The credit crunch has turned into a recession, which means consumers are now looking to get even more value for money than before. As a result, second-hand car dealerships across the country are finding themselves having to offer higher value vehicles at lower prices to make a sale, with savings of almost a third on certain models.
"Comparing information from the Car Purchase Index and industry figures on depreciation, it's clear to see that while the purse strings may be drawn a little bit tighter, this could actually be one of the best times to buy a car. Now is the time to spend the pennies if you want to get the car of your dreams," he said.
An ailing industry
Of course, some people cannot resist the lure of new leather or the chance to show off the latest number plate. And what's wrong with that? After all, they are helping to prop up an ailing industry.
The fall in car sales has forced many firms to axe job and cut back hours and pay. A government aid package worth up to £2.3 billion has so far had little effect. So maybe that new car purchase could save someone's job.
Dealers are certainly desperate to pull you into their showrooms. There are some fantastic offers on new cars at the moment. If you are prepared to haggle, you could easily secure 20% off the list price.
There are even reports of some firms offering two cars for the price of one. Be creative, too. If the dealer won't budge too far on the price, negotiate free extras, such as satnav or air conditioning. Some firms also offer 0% finance deals in certain models.
Mike Pickard of esure car insurance said: "With a recent fall in demand for new cars crippling the car manufacturing industry, now could be one of the best times to buy a car. Discounted prices, cashback offers, 0% finance deals, the reduction in VAT and even buy-one, get-one-free offers at some dealerships are there to entice motorists to part with their cash."
Help at hand?
The government is also thought to be considering a scheme to effectively pay people to buy a new car. Basically, if you swap your old car for a new vehicle, you could get a cash incentive of about £2,000. Similar schemes have been introduced on the continent and seem to be working well. It certainly makes the idea of a new car more attractive.
Finally, let's think about running costs. A new car doesn't need an MOT for three years, saving on garage bills. It should also be covered by a warranty for up to five years. So repair costs should be limited.
Then there's the cost of fuel and road tax. New cars tend to be more fuel-efficient than old bangers, so you can squeeze more miles per gallon. They are also designed to emit less carbon dioxide, which saves on the price of vehicle excise duty. The biggest polluters will pay £440 a year for road tax in 2009/10, compared with a zero rate for the greenest cars. Is that the scent of new leather in the air?
Related links
Today’s best deals on personal loans
Make sure your credit report is in shape before applying for a loan
Confidential, free debt counselling from the CCCS
Check out our vouchers and discounts page
Share your money-saving tips
No comments:
Post a Comment