Car finance explained

Hire purchase (HP)
Best for People who want a simple form of car finance that's easy to arrange.
Typical cost 7 to 13 % APR.
How it works You pay an initial deposit, normally at least 10 % of the car's price. Then you pay the remainder, with interest, in monthly instalments. There's usually an administration fee to pay with the first payment and an 'option to purchase' fee with the final one.
Drawbacks You don't own the car until the end of the contract - so you can't sell or modify the car without the lender's permission.
If you have a good credit record, you'll find that Best Buy personal loans are usually cheaper.

0% finance
Best for People who can pay a large deposit.
Cost None.
How it works You pay a hefty deposit - 35 to 40% of the car's price isn't unusual - and then there's no interest on your monthly instalments.
Drawbacks It's expensive on a monthly basis and this kind of car finance isn't available on all cars. You're also unlikely to get a discount on a 0% deal, so it could work out more expensive overall.

Leasing
Best for People who want a new car regularly without the hassle of owning it themselves.
Cost Monthly payments are normally between £100 and £400 a month.
How it works You choose your vehicle and how long you want it for, and state your annual mileage. These three factors determine your monthly payments. With some schemes, you can opt for the payments to include maintenance.
Drawbacks You normally pay a few months' rental in advance. And you have to take out comprehensive insurance to cover damage -which is costly for expensive cars.
Personal contract plan (PCP)
Best for People who want to keep repayments low and like a new car every two to four years.

Typical cost 7 to 14% APR.

How it works You put down a deposit, pay monthly instalments as you go along, and leave a lump sum to pay off at the end of the contract. The amount you defer, which is set by the finance company, is called the minimum guaranteed future value. The lender guarantees that your car will be worth that amount at the end of the contract. At the end of the contract, you have three options:

A) pay the deferred sum and keep the car
B) sell the car privately to fund the final payment
C) hand the car back to the dealer.

If the car is worth more than predicted, you can use the difference as a deposit on a new car.

Drawbacks PCPs usually work out more expensive than hire purchase. And there are a couple of complications. First, you have to estimate your mileage - and you'll be charged (say, 9p a mile) for each mile above the estimate. Second, if you return the car, it has to be in good nick - any damage will be charged to you.