Buying a new or used car is an expense none of us relish. However, if you need to upgrade your current motor, or are buying your first car, how can you be sure you’re getting the best deal finance deal possible? We look at your options and help you start the process.

Personal Loan

One of the simplest ways of raising the money to buy a car is to take out a personal loan from a bank or building society. You’ll need a clean credit history and you may be required to have had an account with the lender for some time. Typically, the loan will cost you anywhere between 5.7% and 12% so it’s worth shopping around if that’s possible. Monthly repayments will take between one and seven years, depending on the length of time you’ve agreed with the lender. If you’re able to pay back the loan early, you may be penalised up to 2 months’ interest.

Credit Card

Credits cards can also be used for a car purchase but you’ll need a credit card limit that will allow you to spend up to the amount your car costs. APR rates can be high – anywhere between 14.5% and 19% (sometimes even higher) and you need to bear this in mind when it comes both to repayments and to the cost of the car’s whole life value. If the vehicle you’re buying costs between £100 and £30,000 you are protected under the Consumer Credit Act for anything that goes wrong with it. Be aware, though, that not all car dealers will accept credit cards and if they do, they may charge you an administration fee of between 1% and 3%.

Hire Purchase

If you think that the world of car loans can be confusing, you may want to consider hire purchase. It’s the simplest form of financing a car loan and the car dealer can usually arrange it for you. Typically, the APR is between 7% and 13% but you’ll also be expected to have a hefty deposit to hand, usually 10% of the car’s sale price. Other fees include an administration fee with the first payment and an ‘option to buy’ with the last one. Monthly payments are worked out by dividing the price of the car by the length of time you’ve agreed and interest is added to this figure. You should note that the vehicle is not legally yours until the last payment is made, so avoid making any modifications to it and do not try to sell it during that time.

Mortgage

Because mortgage interest rates are low at the moment, another cost-effective option is to add the amount you want to borrow to your existing mortgage. Typical APR rates are from 5.4% to 6.9% and, depending on the lifespan of your mortgage, the loan can take anything up to 25 years to pay off. You should also be aware that if you do add to your mortgage loan in this way, your home may be at risk if you cannot keep up the payments.