By Emma Wall Published: 8:50AM BST 01 Sep 2009  One in 20 people buying a new car last year simply swiped their credit card for the full amount Photo: GETTY  Hundreds of thousands of people are likely to buy cars after the new "59" number plate is released today, with more than two million being sold last year. But many motorists will pay far more than they need to because they fail to choose the best means of financing the deal before they buy.  A new car is the second most expensive purchase many people make, after their home. So, consider your options carefully before signing on the dotted line. Surprisingly, research from the motor insurance group esure shows that nearly a third of buyers do not even haggle over the price of a new vehicle, and only one in 10 spends more than an hour researching finance options.  "With the cost of motoring on the up, it's more important than ever for drivers looking to change their car to make sure they get the best deal," says esure's Mike Pickard. "Whether it's bargaining on the forecourt or researching the right finance package or insurance policy, an hour or two of research at home can make a real difference to your wallet."  Your dealer may offer you a trade-in value for your old car, but this is likely to be less than it could fetch on the open market – provided you can find a buyer. Before agreeing to trade your old vehicle as a deposit, it is worth advertising it on free websites such as gumtree.com and ebay.com to see if you can obtain a better price. If your car is worth less than £1,000 and is more than 10 years old, consider taking advantage of the Government's scrappage scheme.  Once you know the make and model of the car you would like, contact your insurance company or, better still, look at price comparison websites to find out what it will cost to cover. Young drivers and those with convictions for traffic offences should beware buying flashy or fast models they cannot afford to insure.  Anyone who is keen to keep costs to a minimum should have a number of different models in mind and compare insurance costs before buying. It is also worth noting that if you have made insurance claims in the past, you may not be insurable on some more powerful models.  Having sorted your deposit or trade-in and your insurance, you must consider how you are going to pay for the car. Honest John, motoring agony uncle for The Daily Telegraph, says the best way of doing this is with cash. "People often get themselves into such a mess with car debt, but it's unavoidable for most."  Where you need to use credit, remember that the headline interest rate may not tell the whole story. You should also consider arrangement fees and any early exit penalties. Always compare both the monthly outgoings and the total you will have to repay.  "Each route will offer different benefits and drawbacks, so be careful," says Gemma Stanbury, head of savings, loans and debt at price comparison website Confused.com. "It's vital to know how much you'll pay back in total – that way you can check which way will be the most appropriate for you."  There are three main options for motor credit: you can get it from the dealer or a bank or building society. Many drivers take the easy option and sign on for the dealer finance package offered by the car salesman. While this may be the least time-consuming option, it is often the most expensive. Personal contract purchase, loan purchase and hire purchase are the three main payment options that a car dealership will offer.  Personal contract purchase (PCP) is where the buyer pays off part of the cost of the car over a fixed period, normally three or four years. At that point you can choose either to buy the car outright with a lump sum, which, again, is pre-arranged with the dealer or, in some cases, you can use the vehicle to trade up to a newer model. This option is popular because a deposit is not always required, and the rate of interest is usually lower than with a loan purchase or personal loan. One of the disadvantages of a PCP is that the vehicle sale price is fixed, meaning you cannot haggle for a better deal.  Loan purchase (LP) is similar to a personal loan – but instead of borrowing money from a bank, you borrow from the dealership. These agreements can carry high rates of interest so it is worth comparing them with what's available on the high street. However, Ford is currently offering an interest rate of 4.9 per cent on its new Fiesta on a 25-month term, paying £229 a month. The disadvantage is that you will have to pay a deposit of £2,430. See the website or a dealer for more details.  Under hire purchase (HP), the buyer puts down a small deposit of perhaps £1,000 – in some cases this is not required – and signs up to a monthly payment plan which is reviewed after half the value of the car has been paid off. Precise terms vary depending on the credit assessment of individual buyers and value of vehicle.  After half the sale price has been repaid, the buyer can either continue the payment plan or return the car and walk away. Under HP, you are essentially hiring the vehicle, so if you do walk away at this point you will be liable for any damage. Even small scratches can be chargeable at £50 each.  One of the potential pitfalls with PCP and HP is that the dealer sometimes sets a maximum mileage, and you will face penalties if this is exceeded. There may also be penalties for early repayment, but these must be set out in the contract at the outset.  However, these sorts of agreements do tend to have lower monthly payments than would be the case with a standard loan from your bank or car dealer.  You may be able to obtain a loan from a bank or building society. Alliance & Leicester, for example, is currently charging interest of 7.9 per cent per year on a £10,000 loan to be repaid over five years. This means paying £201 per month, or a total of £12,059. For a slightly longer-term loan, Halifax has a seven-year personal loan with an annual interest rate of 8.1 per cent. That makes monthly payments of £157 and the total to pay is £13,205.  Personal loans are appropriate if you want to own the car outright at the end of the payment plan. They also help with budgeting because you know from the outset what the monthly payments will be as the interest rate will not change. But be warned: like HP, some personal loans impose penalties for early repayment.  One in 20 people buying a new car last year simply swiped their credit card for the full amount.  Various credit cards – including Tesco MasterCard, first direct Visa, and Marks & Spencer Mastercard – offer interest-free introductory periods for new customers. But unless you can guarantee that you will be able to pay off the balance within the 0 per cent term – usually up to 12 months – the interest rate after that can be hefty.  For example, all three cards mentioned charge more than 15 per cent annual percentage rates (APRs) after the interest-free period expires. If you decide a credit card is the best option for you to finance your purchase, it is a good idea to set up a direct debit to ensure you are paying off at least the minimum balance each month, so you do not incur extra charges.
A new car is one of our biggest purchases &ndash; so it is important to get the    finance right.