Finance

Unless you are particularly flush, have made a profit from selling your old car or are considering an inexpensive model, you will have to obtain finance to fund your next car. Go in unprepared though, and you could easily end up spending thousands more than you have to. A few simple checks could save you a packet.

Vital points to consider With any finance scheme, the most important figure is the Annual Percentage Rate - APR. This determines how much you pay for borrowing money, and you should always look for the lowest rate possible. There are other factors that affect the overall cost too, these include:

· Length: shorter loans are obviously cheaper, as you're borrowing money for less time. However, this needs to be offset against higher monthly premiums.

· Security: unsecured loans can be a little more expensive, but you won't lose your house if you default on payments. Secured loans are usually secured against your house, can be cheaper, but you need to be absolutely certain you'll keep up payments.

· Insurance: most schemes feature payment protection or other types of insurance. Great if your circumstances are a little unsettled, but they often add quite a bit to monthly payments.

Types of finance There are two main types of finance available to used car buyers - we've looked into the pros and cons of each.

Personal loans

Obtaining an unsecured personal loan has never been easier. There are literally thousands of financial houses out there offering attractive deals, making shopping around vital if you want to save money. Most private buyers find them ideal, as they:

· are easy to obtain. Often, a phone call or internet session is all that's needed.

· mean you own the car immediately, unlike other schemes. However, personal loans are usually subject to higher levels of interest than HP schemes - especially for smaller loans - and impose a maximum limit, usually around £15,000. If your potential car is expensive, you'll have to take another route.

Hire purchase

The traditional route to a used car - hire purchase schemes remain popular. Unlike personal loans, you don't actually own the car until the final payment has been made, meaning that any missed payments could see you lose your car. But although this sounds dramatic, there are benefits too:

· Simplicity, as HP schemes are sometimes easier to obtain than personal loans, especially if you have a less-than perfect credit history.

· Interest rates are lower and you can also borrow far higher amounts compared with personal loans.

As long as you're sure you can afford the repayments, hire purchase schemes offer reasonable value, explaining their continued strength in the face of newer alternatives.

Other schemes Personal Contract Plans

PCPs are popular with new car buyers, but don't really make sense for older cars. They all contain a Minimum Guaranteed Future Value . This is the value the PCP company think the car might be worth when the scheme runs out in three or for years time. You have to pay this amount as a lump sum at the end of the set period, which helps keep the monthly premiums low, but might be difficult to fund when the time comes. Almost all PCP schemes, therefore, let you give the car back at the end of period with a guarantee that it will wipe out the debt. If you do that, of course, you end up with nothing at all.

Tips

Make sure you remember these two priceless tips:

· Don't borrow too much; very easy to do - especially when glossy brochures make it all look so simple - but you're the one who'll have to pay it back each month.

· Be strict. Shop around as much as possible - then shop around some more. There are so many loan companies out there, you'll almost always find a cheaper rate or better scheme for you.