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A Hire Purchase agreement is one of the most common forms of car financing. It involves you paying fixed monthly instalments (with interest), either to a car dealership or to an independent financing company. A Hire Purchase agreement often requires you to pay a deposit of around 10% of the value of the car at the beginning of the contract. Repayment terms can be anywhere between 12 and 60 months, and the APR is typically fixed from the outset.

You can get pretty competitive rates from dealerships and manufacturers, but you should always bear in mind that you won't actually own your car until you complete the agreement and you pay the 'option to purchase' fee. As the car dealership or finance company remain the legal owner of the car, you are not allowed to modify or sell the car during the repayment period. In addition, as the loan is secured against the car, there is a chance that your car may be repossessed, should you fail to keep up with the payments.

Conditional Sales work in much the same way as a hire purchase agreement, only without the need to pay a fee at the end in order for you to own the car.

Another popular way in which people purchase new cars is through taking out a personal loan from a bank or financial organisation. The interest rate you are offered will depend entirely on your credit history. However, for people with a good credit score, this can often be the best way of purchasing a new car. If you fund the purchase of a new car with a personal loan, you become the legal owner of the car as soon as you pay the car dealership. As a result, you can modify the car as you please. In addition, you can also sell the car during the repayment period, which can be especially useful if you are struggling to keep up with your payments. For more information on unsecured personal loans, click here.

A Personal Contract Purchase (PCP) is a slightly more flexible variant of a Hire Purchase agreement. A PCP is a form of long-term rental, where you agree with the dealership on the amount you will use the car, both in terms of mileage and time. A PCP will often require you to pay a deposit of 10% and to pay fixed monthly instalments, which will allow you to use the car for an agreed amount of time. Following the end of this period, there is a degree of flexibility. You can keep the car, hand it back or upgrade. Should you wish to keep the car, you will need to pay a lump sum which will have been deferred from your monthly payments. Due to the size of this fee, the monthly payments for a PCP can be substantially cheaper than the monthly payments for a Hire Purchase agreement. It is important to remember that there will be excess charges if you exceed the agreed mileage or damage the car in anyway. Due to the vast amount of choice, in terms of both financing options and providers, it is crucial that you shop around when deciding how to purchase your new car, in order to ensure that you get the best and most appropriate deal. When buying a used car, it is also important to check that it is not subject to outstanding finance and thus owned by a dealership or finance company.