CAR LOANS
A specific car loan can provide additional benefits such as discounted breakdown insurance or motor insurance cover, and it tends to be easier to obtain than a personal loan. But it may be secured against the car, and as with dealer finance you’re not the owner until you’ve made the very last payment, so dropped repayments can lead to repossession.

HIRE PURCHASE (HP)
This is usually easier to arrange than a car loan, and it can be one of the cheapest financing options. Often HP is a good choice if it’s proving difficult to be accepted for a loan, but remember that as you don’t personally own the car until the HP term is over, repossession is a threat in the event of defaulting on repayments.

PERSONAL LOANS
Shopping around for a personal loan will often lead you to a lower APR (Annual Percentage Rate) than you’ll get with dealer finance. You have complete freedom in terms of the choice of make and type of car, and as the loan isn’t secured against the car, there’s no risk of it being repossessed if things go wrong. But you may need to provide other loan security – typically a charge against the value of your house – and this type of loan may prove more difficult to obtain than dealer finance.

PERSONAL CONTRACT PURCHASE (PCP)
Now, this is a clever one. A PCP can be a very attractive option for someone who can’t otherwise afford to buy a car – even with finance. It allows significantly smaller monthly payments than other types of finance, and is very fl exible in payment terms and deposit size, although one disadvantage is that you must pay a much larger than usual deposit. It’s particularly suited to those who often like to upgrade their car, and it works like this.

You pay a deposit of 10 or 20 percent of the car’s price, and agree the car’s future worth at the end of the PCP agreement (usually three years). This is the Guaranteed Future Value (GFV) and can be as much as 40 per cent of the car’s price. With the deposit and GFV deducted from the full price, monthly repayments are calculated on what’s left (plus interest on that and the GFV). That’s why repayments are smaller than with other finance types.

You lease the car for the three years, after which you either pay the GFV to own the car outright, or you hand it back and start a new PCP on another. Watch out as there may also be an option-topurchase fee.

PCP is very convenient, and a means to an end, but whether you keep or hand back the car, it is without doubt the costly option.

One last thing before you drive your acquisition off the forecourt. Even though it’s a new car, you should check that all the electrics work, that the bodywork is free of dents and scratches (and even rust – some new cars can be stored for weeks or months in coastal pounds before making their way to dealers) and that the car manual and service book, road-tax disc and spare wheel and tools are all present. In the unlikely event of any disputes, carrying out these checks at the start will put you in a stronger legal position.

Following our simple tips could save you a handful of cash, allowing you to splash out on the optional extras you’d really like, or maybe even going towards funding your next new car.