CAR DEALERS are revving up for a rush of motorists who are keen to buy a car with the new "58"registration plate tomorrow. September is a busy month for showrooms - about 20% of cars sold each year are bought next month. But dealers don't just make money on the sale, they also rake in the profits from the finance.

If you take out a loan with the car dealership the typical interest rate is 10.17%, compared with the cheapest personal loan rate of 7.4%, according to figures from uSwitch.com. Simeon Linstead, head of personal finance at uSwitch.com, says: "Motorists are set to throw away £168 million by opting for car dealer finance. If they choose a low- rate personal loan instead, they could save up to £1000 each in interest."

Let's take as an example a motorist who buys a Vauxhall Astra TwinTop Air, one of the top five selling cars, for £18,215 with a deposit of £1821.51. The buyer could expect to pay a typical interest rate of 11.4% through Vauxhall's car finance deal, which would add up to £2871.91 in interest over three years. However, if the motorist bought the car with an Asda personal loan, the typical rate of interest would be just 7.4% and the total interest paid £1871.83 - a saving of £1000.08.

Linstead says: "Shopping around for a competitive loan before shopping around for the car is essential. Buying a brand new car is a big expense which can be seriously inflated if the financial arrangements are not researched thoroughly. Trusting consumers may think that purchasing a vehicle from a reputable dealer also means they will be offered the most competitive finance deal, but this is certainly not the case."

There is another advantage to sorting out the finance before you buy the car: it boosts your bargaining power on the forecourt. Linstead says: "You may find you are able to drive down the cost of the car as you can strike an immediate deal."

Personal loan rates have gone up over the past year. Michelle Slade, an analyst at Moneyfacts, says: "Since August 2006 the average rate on offer for a £5000 loan over three years has increased by just under three percentage points, from 8.1% to 11.0%. With no real signs that conditions are going to get better in the near future, rates could get much higher yet."

But there is a big difference between the best and worst deals. Slade says: "Currently on a £5000 loan there is a difference between the cheapest and most expensive loan of £25.55 a month, which equates to £919.80 over three years."

Lenders are also turning more people away. It is estimated that 1.39 million people have been rejected for loans since the beginning of the credit crunch. So what are your options if you can't get a decent personal loan?

0% credit card Some credit cards offer 0% purchase deals, which is a cheap way to pay for your new car or fund some of the purchase. Just make sure you clear the debt before the 0% deal expires and interest starts to rack up.

0% car finance A number of car dealers tempt buyers with 0% deals on some of their makes and models, although you might have to put down a hefty deposit. If your chosen car doesn't qualify for a 0% deal, then it's worth asking about a standard car loan. Just make sure you understand the full cost of the deal. Some dealers quote a flat rate of interest that can seem cheaper than an APR. You should compare like with like and always ask for a total interest figure, including all charges.

Watch out, too, for extras such as payment protection insurance (PPI) and guaranteed asset protection (GAP). PPI covers the cost of the loan if you can no longer make the payments because of an accident, illness or redundancy. But it can be expensive and it is often riddled with exclusions. GAP insurance pays off the loan if your car is written off in an accident and the insurance firm doesn't stump up enough to pay the debt in full. Again, the cost can be high and it's important to check the small print for exclusions.

Hire purchase It's an old-fashioned concept, but hire purchase is still a popular way to buy a new car. You put down an initial deposit of between 10% and 15% and then pay the outstanding balance in monthly instalments over one to five years. Buyers should be aware that they don't actually own the car until all the payments have been made. Also, if you don't keep up the regular payments, the lender can repossess the vehicle. Ian Crowder of the AA warns consumers to take care. He says: "Some motorists take out a hire purchase agreement in the mistaken belief that they are arranging a car loan. Sales staff do not always make the differences totally clear."

Personal leasing Personal leasing is a bit like hiring a car. You make fixed monthly payments over an agreed time period. At the end of the term, you simply hand back the car. However, if you exceed a certain mileage, you could be charged extra.

Personal contract purchase If you enter into a personal contract purchase agreement you pay an initial deposit and then make monthly payments - a bit like hire purchase. But a proportion of the value is deferred until the end of the loan term, known as the guaranteed future value, so the monthly payments can often be lower than with hire purchase.

At the end of the term you have three choices: you can hand back the vehicle; pay the pre-agreed sum to buy the car outright; or trade it in against a new car and begin the process again. As with personal leasing, you might find you have to pay a fee if you exceed a certain mileage.

But perhaps you shouldn't buy a new car at all. Some cars lose almost half their value in the first year; after three years depreciation can wipe away about two-thirds off the purchase price. So, a second-hand car can represent far better value - even if you will have to forego the pleasure of showing off the very latest number plate.