MAKE YOUR MONEY WORK HARDER

WHEN you're buying a car, used or new, you have endless choice of makes and models at your disposal and the same applies when it comes to finance. As a result, many motorists find the world of vehicle financing quite baffling.

Yet the finance business is not at all complex. Providing you shop around and weigh up the options, then choose a responsible lender, you're unlikely to find yourself pushed into a bad deal.

■ Why borrow?

There are several reasons to borrow, even if you have the available cash. For a start, if you take it out of your account, you could lose plenty of interest. You also won't have it for unexpected emergencies, at which time borrowing money could be more difficult.

Nor would having cash up front give you more bargaining power. Your local garage will be just as keen to cut a deal, however you choose to pay.

■ How and where to borrow

Take a little time to consider your options, however keen you might be to get behind the wheel. It might sound obvious, but be clear about exactly how much you can afford.

There's the period of the loan to decide upon too – usually one, two or three years. Obviously, the longer you take to repay, the more interest you'll end up having to cover; be clear about what you're taking on and opt for the shortest repayment period you can manage.

As to your sources of borrowing, credit and storecard companies, insurance companies and, of course, banks are obvious candidates. In this case, the easiest source is, however, often the best; your local dealer. They will usually be able to introduce you to several insurance companies, so that you can compare the deals available. And they'll help you with the paperwork.

■ How credit Is granted

Of course, wherever you borrow from, the lender will want to make sure that you really will be able to repay the amount. The lender may ask you for relevant personal facts, including information on home and mortgage, work and income, bank and credit card accounts and so on. They will probably also want information on any other debts you might have.

The next step is for the lender to acquire information from an independent credit reference agency. Should this lead to credit being denied, you have the right to search your record at the agency and correct any errors in their information.

■ Finance – your options

So, you've cleared all the early hurdles. Now it's a case of deciding which of the many means of financing is right for you.

■ Conditional sale

The traditional means of finance. You pay a deposit, followed by the balance (plus interest) in fixed instalments over a pre-determined contract period. As long as your payments are made on time and you keep the vehicle comprehensively insured and in good condition, then you own it at the end of the contractual period.

■ Hire purchase

Here, you hire the vehicle for a fixed period. During this time, you repay, by instalments, the total cost of the car, plus interest. At the end of the period, the vehicle remains the property of the finance company unless you pay an extra nominal "option to purchase fee".

■ Personal loan

Loans are usually offered by banks, building societies, credit card organisations and some finance companies; there's plenty of options, so shop around. Depending on your status, you will have the choice of either a secured or unsecured loan. As the name suggests, secured loans require you to offer something (usually your house) as security against the possibility of your defaulting on repayments. This reduction in the lender's risk factor usually makes these a little cheaper.

■ Credit sales

Different from a personal loan in that the money is advanced for a specific purpose only – the purchase of a vehicle. You enter the credit sale agreement with the lender, who then pays the dealer for the car. You are then the vehicle owner and must pay the lender by equal instalments, including interest.

■ Personal lease

Until recently, a business option only. However, as a result of recent changes in the VAT laws, it has become a private user's alternative. Here, you never actually own the vehicle, so never worry about depreciation.

You would normally make an up-front payment (usually equal to three monthly payments) and then make monthly payments over the remaining period (usually one or two years in total). Afterwards, you simply hand the car back.

■ Personal contract purchase finance schemes

Most of the major franchises now run these PCP schemes. These programmes offer lower monthly repayments by virtue of the simple fact that you're not actually paying off the full value of the car.

What's involved is an agreement at the end of which the customer can either trade the car in for a new model or pay a nominal purchase fee to do either of the following – pay the final payment and keep the car or return the car to the dealer instead of paying the final rental (providing the car has been maintained in good condition and/or has not exceeded the previously agreed mileage).