Those planning to buy a new car should consider taking out a personal loan before opting for finance from their dealer, according to Alliance Leicester.

The personal loans provider says car dealers' loans typically charge interest at an interest rate of 12.8 per cent, compared to Alliance Leicester's personal loan interest rate of 6.1 per cent.

Nearly a fifth of motorists take out a loan from their dealer, meaning that they could overpay up to £20,400 in interest over the lifetime of their loan, according to the personal loans provider.

These people are wasting a small fortune, comments Claire Alvey, the personal loans manager at Alliance Leicester.

She says that the purchase of a car is the second biggest purchase people make in their lifetime and that they should shop around for a competitive interest rate on their borrowings.

By spending just a couple of minutes looking at some of the low-rate personal loans available, you will be armed with enough information to judge whether the deal the car salesman is offering you is worth entering into or not, she advises.

Ms Alvey adds that the money drivers save in this way could be used to add luxuries such as satellite navigation or air conditioning to their vehicles, or even upgrade their cars to a better model.