New car that has been soldMotoring enthusiasts across the country will be ordering shiny new cars with brand new number plates this month.

And whether they are buying a runaround or a four-wheel drive, few will have enough cash available to fund the purchase in full. But what is the best way to borrow to buy a car? We investigate.



Personal loans
A low cost personal loan can be a great way to finance a car purchase. And the good news is that you can currently borrow between £7,500 and £15,000 over one and five years at just 5.8% with Derbyshire Building Society (as long as you have a good credit score).

That's a lot cheaper than the interest rate you will be charged by most manufacturers or dealerships.

However, the rate you pay will depend on the amount you need to borrow, with smaller loans of say £3,000 attracting higher interest rates.

The cheapest offer currently available on this amount is from peer-to-peer lender Zopa, which is funded by savers and charges around 10.1% on £3,000 over five years.

Credit cards
Used wisely, credit cards offering 0% on purchases could allow you to borrow the money to pay for a new car completely free of charge.

Both the Tesco Clubcard Credit Card and the American Express Rewards Credit Card are currently offering 0% on purchases for the first 16 months, as well as access to rewards schemes.

You will, however, need to be disciplined about repaying the debt within the 0% period. Tesco's standard rate is a hefty 16.9% and American Express charges a massive 19.9% once the 16-month interest-free deal is over.

Paying interest at this rate for just one month could therefore cost you dear, while some dealerships will charge punitive handlig fees on credit card transactions.

Interest-free deals are not the only reason to use a credit card to fund at least part of a car purchase, though.

Even if you only use a credit card to pay the deposit (of at least £100), you will also be protected by Section 75 of the Consumer Credit Act, which states that card companies are jointly and severally liable should you lose the money.

You can therefore apply to your card provider for compensation should something go wrong.

Dealership/manufacturer finance
Most dealerships provide finance agreements, while manufacturers also offer deals on different makes and models.

Peugeot, for example, is currently advertising a new three-door 107 for as little as £159 a month, including insurance, servicing and car tax during the three-year term.

However, the interest rate on this deal is 9.5%, meaning you could pay hundreds of pounds less by taking out a three-year personal loan with Derbyshire Building Society.

It is also worth pointing out that,with these hire purchase deals, the vehicle does not belong to you until the end of the term.

It could therefore be repossessed if you fall behind on your payments, and cannot be sold until the final payment has been made.

You are more likely to be approved for a scheme of this kind if you have a low credit score as a result, though.