A new investigation from Admiral Car Finance has revealed a range of hidden and unexpected costs consumers could unwittingly be hit with when purchasing their next car on finance, which could see them spending almost £1,200 more than they need to.

With 2.4 million people spending a total of £37.6 billion on car finance last year, consumers are spending an average of £15,500 each on car finance, but Admiral has warned drivers could find themselves with a bigger bill if they fall victim to additional upfront and end of contract charges they weren’t expecting.

Reviewing dealership finance agreements and charges when returning a vehicle at the end of the contract, Admiral found that failing to shop around for finance, being charged for using third party finance, administration fees and over mileage charges could collectively add up to almost £1,200.

Comparing costs from 10 different providers’ finance deals based on equally priced cars, Admiral found an average APR of 11.8% compared with its own offering of representative 7.9% APR, meaning buyers could save on average £736 simply by arranging the finance for their car before heading to the garage.

In some cases, this savings figure could jump to £2,136 based on an APR of 13.9% – the highest rate found as part of the investigation.

Admiral also revealed that saving just 1% on the cost of HP car finance (by paying 11% instead of 12% APR) could save drivers around £190 over four years, enough to cover the cost of 1,724 miles worth of petrol.

Whilst not shopping around for finance can prove costly, Admiral is also urging car buyers to be aware of a potential charge for using third party car finance.

Admiral’s research revealed some car dealerships that provide partnered finance for customers, impose charges to buyers who want to pay for their car using a finance agreement they’ve arranged themselves from a ‘third party’. Admiral found the average charge for third party finance was £365, with the highest charge found as part of the investigation coming in at £495.

Some garages also charge buyers an ‘administration fee’, the purpose of which varied between dealerships including provision of documentation and vehicle preparation. The average charge for admin fees found as part of the investigation was £169, with the highest fee coming in at £199.

Car finance PCP agreements are based on drivers sticking to the annual mileage limits laid out in the agreement, with providers (Admiral included) clearly advising customers that exceeding the limits will incur charges and stating upfront what these are. But whilst a small pence per mile charge might not seem very much at first glance, Admiral calculated that driving just an extra 2 miles a day over the course of a four year agreement could add up to 3000 extra miles and cost drivers an extra £286 on average at the end of the deal. Admiral is reminding drivers of the importance to estimate their mileage to the best of their ability to avoid exceeding their limit, and is suggesting customers allow some contingency mileage to ensure unexpected additional journeys don’t end up adding unexpected costs.

Reviewing the excess mileage charges for 10 finance agreements from five different providers, Admiral found an average over mileage charge of 9.52 pence per mile (ppm), based on deals with mileage limits of 6,000 to 10,000 miles per annum.

The highest rate found was 20.4ppm for exceeding 8,000 miles a year, the equivalent of just 22 miles per day. In this case, driving 3000 extra miles in total over the course of a 4 year contract would result in a charge of nearly £612 at the end of the deal.

Admiral also informed that consumers could face charges if they try to pay off their finance agreement early. Many providers, Admiral included, do detail their early repayment charges clearly but are reminding drivers to bear in mind that if their situation changes and they need to exit their agreement it will not be cost free.

Admiral also reminded consumers that they are within their rights to voluntary terminate from a finance agreement. Voluntary termination can only be done once 50% or more of the amount owed (including loan amount, deposit and interest) has been paid. If you have not paid up to 50% you will need to pay up to this amount to voluntary terminate, or you can choose to voluntary surrender from the finance agreement instead. Admiral recommends researching into the options available to you.

Another potential cost is for cars being returned that have suffered damage. Drivers whose finance agreement means they return the car at the end of the contract, rather than become outright owners, need to take the best possible care of the car to avoid any additional costs as large scratches, scuffs or stains outside fair wear and tear are likely to result in a charge.

Whilst deposits on rental properties, for example, are usually refundable at the end of the agreement, Admiral Car Finance is also reminding car buyers that deposits paid when purchasing a car don’t work in the same way, and should be thought of as a down payment as they are not a sum that is returned to a customer at the end of the deal.

Scott Cargill, CEO of Admiral Financial Services, said: “Purchasing a car on finance is a popular option for many drivers as it allows them to drive a new or nearly new car and spread the costs over monthly payments rather than having to pay in one go. Where consumers could lose out substantially is if they are hit with additional charges that they simply haven’t budgeted for.”

“We’d urge people to shop around before signing up to any financial agreement, as they would for any large purchase, to ensure they’re aware of any restrictions on mileage and car condition charges upfront. Saving a small portion of their budget to cover any additional costs at the end of their contract could also help make sure there are no nasty surprises.”

“Research is key when it comes to car finance and making sure you’re not only aware of charges but also understand them before you sign on the dotted line could save you a lot of money in the long run.”