Desire to change car at 5-year high
More people are planning on buying a new car than at any other point during the past five years, the AA has revealed.
In a sign of increasing consumer confidence, the AA Car Purchase Index has found 76% of people are looking to change their motor in the next five years, a big increase on the 48% who said the same in 2013.
In the next year alone, more than a quarter (27%) of those surveyed said they would be looking to change their vehicle in 2014 - up from just 16% last year.
Of those planning to buy in the coming five years, 21% say that they will be purchasing a brand new vehicle, while 77% will opt for a used car.
Potential buyers are most likely to spend between £5,000 and £10,000 on their new wheels and using savings continues to be the most popular way of paying – 52% plan to raid their savings, while 11% said they would take out a personal loan to pay.
Mark Huggins, director of AA Financial Services, said: "Given the cost, buying a car is a decision that's not taken lightly so it's encouraging to see the car sales market is really picking up. January saw a sharp increase in the registration of new cars, up 7.6%, compared with January last year – which augurs well for both the new and used car markets.
"The most likely explanation for the increase is much greater financial optimism as unemployment figures fall and house sales pick up too."
Are you thinking of buying a car? Here's some information about payment methods.
1. Paying by cash: The cheapest way to purchase your new motor is to pay cash upfront. There will be no interest to pay on loans and you will own your car straightaway. It's important to remember that as dealers make money from selling finance packages, let them think you're considering a finance deal until you've agreed a price.
2. Hire purchase (car finance deal): You will have to pay a deposit, usually at least 10%, and then repay the balance with interest over monthly instalments. If anything goes wrong with the vehicle then the lender is jointly responsible with the dealer for fixing the problem and if you don't want to keep the car at the end of the term, you can sell it back to the dealer too.
However, you won't own the car or be able to sell it off until all the payments are made. The car can also be repossessed if you fail to keep up with the payment plan.
3. Personal loan: If you are considering a finance deal, then it is worth checking out whether it is cheaper to take a loan instead as it's likely you'll get a better deal. Repayments will be lower if you spread the cost over a longer term but you will pay less interest with higher repayments if you decide to go for a shorter-term loan.
Shorter-terms will also let you access a wider range of loans with better rates too but be aware that loans over a year will come with a redemption penalty if you pay it off early.
If you want to escape from a special mortgage deal within a specified timeframe, which often extends beyond the deal ending, the lender will levy redemption penalties. The early redemption penalty might be several months’ interest or a percentage of your loan. Either way, it could cost you several thousand pounds and is the mortgage lender’s way of making you stay put after the initial low interest rate period has ended paying an above-average rate.