Can a garage really offer cheaper loans than a bank?

25 September 2013

When I bought my iPhone, I didn't buy insurance from O2 and whenever I've bought new appliances I've never succumbed to the hard sell and bought an extended warranty.

Call me a personal finance journalist but as soon as a shop or other retailer starts flogging me financial services I start to become very suspicious and raise my guard. As far as I'm concerned any deal is likely to be way more expensive than one I could find myself – if I think the product is needed in the first place. Then there is the fact that the sales person is more than likely on commission.

While I don't reckon I need warranties on my appliances or insurance on my phone - when it came to buying a new car (well, used more specifically) I certainly did need the loan being offered to me by the garage we were buying it from. So you can imagine my surprise when it said it could beat the best deal I could find on the open market – in this case 5.1% from Sainsbury's Bank and First Direct.

The deal was pretty flexible too – we could overpay or repay the loan early and it could all be arranged in a matter of minutes, meaning I could get my hands on my lovely new motor sooner rather than later.

Yet all the time I was looking for a catch and sure enough it quickly reared it's ugly head.

Even though the garage had agreed to beat the banks' rate, when the monthly repayments came through they looked far higher than the quotes from Sainsbury's and First Direct.

After further probing it appeared that while the motor finance company being used by the garage had been flexible on rates, it wasn't prepared to waive the various set-up fees the garage had so far failed to mention. These totaled around £300 which, once added to the loan, could have cost us a whole lot more in interest.

We ended up taking a fee-free loan from First Direct, which took about 15 minutes and was paid into our account immediately.

So as far as I'm concerned, my cynicism is well and truly justified. Don't fall for the salesman's banter - just 10 minutes research online could potentially save you hundreds of pounds.

  • Have you ever taken out an expensive loan or warranty when buying something and regretted it? Or can you disprove my theory?  I'd like to hear your stories...