Car loans soar in popularity

The number of consumers taking out car loans from vehicle dealerships has rocketed over the past year.

Tim Moss, head of loans at moneysupermarket.com, said the current popularity of car loans was driven by two factors. "Firstly, personal loans are extremely hard to get at the moment, but with car finance, your loan is secured against the metal, so it's a lot less risky for the company. Secondly, while people used to turn their noses up at car finance because they could get a loan for 6.5 per cent somewhere else, they're now going away and either realising that car finance is cheaper than any personal loan they can get, or their only option."

A car loan may traditionally have been regarded as a more expensive form of borrowing than a personal loan, but the credit crunch has changed that. Most high street lenders have been increasing their interest rates over the past year. A typical personal loan now costs 7.7 per cent, compared with 6.5 per cent this time last year.

In a further spot of good news for car loan customers, it's now possible to obtain new cars at knock-down prices. A fall in demand for new cars has meant a number of manufacturers are offering competitive prices to shift their stock. Moss spoke of his own experience: "I just bought a Renault, which had a list price of £21,500, for £14,000 - brand new."

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