Making the credit crunch work for car buyers
The credit crunch. We've all heard about it, now we're starting to feel it and while the economic turmoil impacts on many parts of our lives, we're interested in one particular market - car buying.
The credit crunch has hit car manufacturers and car dealers badly, to the extent that new sales are currently down 20 per cent on the same time last year. When people are reluctant to spend money, large purchases are often the first to go.
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The effects are already apparent. The majority of manufacturers with UK operations have cut production, while industry sources are predicting dealership closures over the next year.
But while all of this means it's a bad time to sell a car, it can be a great time to buy a car. Manufacturers and dealers are desperate to sell stock, meaning amazing deals are available on some models, whether that means added options at no extra cost, good finance deals or just a whacking great slab of cash off list price.
Deals on car will extend to outright purchases on new models or used models, and even good financing deals. Below we'll outline some of the best tactics to help you locate the good deals that are out there.
New models and the credit crunch
Getting a good deal on a new model is often as much about how hard you're willing to negotiate and how flexible you are prepared to be. But currently manufacturers are offering deals on models before you've even walked into a dealership.
While such deals are often transient - lasting a matter of weeks - they can encompass 0 per cent APR, free servicing, free road tax, cashback, more standard kit for no premium and free insurance. Look out for these deals and weigh up which are the best for you.
• Be realistic on part-exchange prices. Used values have declined significantly, and if your part-ex is an undesirable make or model or it's not in tip-top condition, you may get an offer well below what you bargained for.
• Work out what's of most value to you in terms of added extras.
• Currently undesirable models that are expensive to run such as sports cars, large SUVs and luxury models are likely to attract the highest savings, if you can afford to swallow the associated high running costs.
• Bear in mind that falling residual values may take their toll on your purchase. This is currently especially true of high-end models.
• Demand between September and January is normally sluggish, and dealers under more pressure to meet monthly, quarterly and annual targets. Power shifts to the consumer at time such as this.
Used models and the credit crunch
Rapid depreciation in the used-car market has led to the value of second-hand models tumbling. While this means your part-exchange isn't going to be worth its weight in paper, it does mean that there are significant deals to be had.
There's likely to be a lot of used stock around, meaning dealers are more likely to 'do a deal' to shift stock and get cash in their bank accounts.
Models coming back from three-year leasing deals are likely to be difficult for dealers to shift.
• Be prepared to be flexible. While more stock means more chance of you finding the car you want, if you're prepared to go for something different you're exposing yourself to much more deals.
• Consider going to a used-car auction, where many ex-leasing and ex-fleet vehicles turn up. Low-specced models of executive models used by business or leasing customers are currently turning up at auction houses in large volumes.
• Bear in mind that smaller, greener cars will be less affected by high running costs and falling residual values. More expensive gas-guzzlers may be cheaper to buy, but they'll cost more to run and you're more likely to lose money on residual values.
Leasing and the credit crunch
PCP deals guarantee your car's minimum future value, meaning you can enter into such a deal knowing that your car will not depreciate past a certain point.
Good deals are likely to become harder to find as the economic climate worsens, particularly as manufacturers are losing cash on high-end models coming back from a leasing agreement.
If your credit rating is poor, you're likely to find it harder to come by leasing or finance deals.
• If your credit rating is good, seek out the best PCP deals, and make sure you agree a sensible minimum guaranteed future value.
Finance and the credit crunch
Buyers with hefty deposits are likely to get a better deal at the moment, but good car finance deals are still available - including some 0 per cent APR offers from manufacturers.
Finance from banks are likely to be a no-no at present, especially if you have a poor credit rating, but a strong credit rating may attract very low interest rates.
Finance from manufacturers and dealers is likely to be the best option at present, though.
• Be aware of exactly what you're entering into, ensure you plump for something you can definitely afford, and be prepared to shop around for finance. Knowledge is power.
Conclusion - car buying and the credit crunch
If you have cash and a good credit rating it's a superb time to buy a new car. But even without access to cash or credit, you can make the credit crunch work for you by knowing the score and buying wisely.
If you're looking to shift a current model, the credit crunch will not be your friend. Dropping residual values and an oversupply of used stock means you won't get much for your trade-in.
Researching your purchase, shopping around for finance and leasing deals, being prepared to negotiate and a willingness to be flexible on your car purchase should mean that you can make the credit crunch work for you - and buy a car for less.
• Top ten new-car buying tips
• How to get the best deals on cars at Christmas
• Guide to car leasing
• Clean up when selling your car