A personal loan

So you fancy a £5k Ford Cortina rather than a £5m Ferrari? One of the options open to you here is to take a personal loan from one of the many providers available (most of whom provide a finance calculator). Make sure you've got your finances sorted though and that you can afford the monthly repayments. 

One of the big advantages of going for a personal loan is that you can shop around – and that's the first thing you should do. Online comparison tools make it easy, but don't stop there, make sure you know what's on offer from your local bank and building society too. Many have special offers for account holders that come in below what the aggregators offer. Don't forget, you can use a mix of savings, a 0% credit card and personal loan to pay for a car, so don't feel that you have to take a loan to cover the full cost of the car. 

But do remember, however, that there is often a delay between you completing your loan application and actually receiving the money in your account - so get the funds sorted before you find the car. Otherwise you'll put yourself under pressure and could easily end up paying more than you need to. 

There are two forms of personal loans: secured and unsecured. Unsecured are judged on your credit history, whereas secured loans have a form of collateral against them (usually your house) and therefore take longer to set up.

Some loan providers have structures that means the more you borrow, the lower the APR. So if you're on the cusp of a boundary, it may be worth opting to borrow a little bit more to save a lot.

Hire Purchase

With hire purchase, the finance company will pay the dealer for your car. You pay a deposit followed by equal monthly installments (plus interest charges) for the agreed period. At the end of this period you own the car outright.

Here, the monthly payments are set and do not follow a varaible interest rate, so you know what you're paying. Drivers can also pay off their loan agreement in full.

It's important to remember you don't own the vehicle, you will be it's registered keeper and have the V5C logbook - but the loan is secured against the vehicle, which means the vehicle can be repossessed. 

The financial company will register a financial interest with HPI, which is removed when the final payment is made or the loan settled in full.

Unlike a lease, there's no VAT to pay on monthly installments - but there is interest so you'll pay more for the car overall.

Lease Purchase

With lease purchase, you pay a deposit, then lower monthly repayments, followed by a balloon payment at the end of the agreement. 

Because of the final balloon payment, the monthly cost is often lower  - but you never own the car. The initial loan is secured against the vehicle. If you don't pay, they take it away.

The vehicle is registered to you, and you get the logbook, but at the end of the term, the vehicle is either be sold to an unrelated third party, or you can use the vehicle by paying for a smaller secondary rental.

Auction Finance

Finance specialist JBR Capital now offers auction finance. It allows would-be buyers to secure finance before they bid at the sale. 

A spokesman said, 'We lend direct – we are not a broker – which means we assess every car (and of course its owner) we finance individually. And if time is of the essence, we’ll give you a quick decision and pre-approve funds, making them immediately available once your bid is successful.'

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