Adding just £50 to your loan could save you up to £1,600.
Borrowing an extra £50 to buy your new car can save you up to £1,600, according to new analysis of the car finance market.
For example, the consumer magazine found that loans of £5,000 often have lower interest rates than loans of £4,500 or even £4,950, meaning customers could save three- or four-figure sums by taking out larger loans.
In the case of the Spanish-owned bank Santander, a £4,500 loan would cost a total of £5,779.20 to repay, whereas a loan for £5,000 would cost just £5,467.20 - a saving of £312.
It’s the same story with TSB, where WhatCar? found that a loan for £4,950 would cost £7,410.72 to repay, while a loan for £5,000 would cost £1,379.04 less, at £6,031.68.
And £5,000 isn’t the cut-off, with loans of up to £8,000 proving cheaper than their smaller counterparts.
The best saving, though, was to be found at Lloyds, where a loan for £7,450 proved more than £1,600 more expensive than a loan for £7,500. Increasing the size of the loan by just £50 cut the repayment from £9,703.20 to £8,101.44.
The news comes as the popularity of car finance grows, accounting for 88 percent of all new car sales in 2017 and posting an eight-percent increase during the first six months of 2018 alone. According to the Finance and Leasing Association, the market is now worth in excess of £10 billion.
However, concerns have been raised about the finance industry, with the Financial Conduct Authority (FCA) investigating whether finance products “could cause consumer harm.” In an interim report published earlier this year, the organisation said the proportion of consumers defaulting on loans was increasing.
What Car? editor Steve Huntingford said that while consumers should live within their means as much as they can, but those who are borrowing to buy their vehicle should research their options thoroughly.
“We would always recommend borrowing as little as possible,” he said. “But where the loan amount is close to the threshold for a lower interest rate, borrowing as little as £50 extra could save you 10 times that amount, so borrowers should do their homework.”