This weekend Volkswagen said that it had achieved its 2008 target or car loans worth £1bn five months ahead of schedule- despite an overall downturn in UK car sales.

Volkswagen attributes its success to having more available funds and that they can move quicker than other financial organisations. Graham Wheeler, Managing Director of Volkswagen, claimed that the company's long-term planning has meant that the economic credit scare isn't affecting their lending power.

Historically, car finance has been dear compared to personal loans available in the wider market but most high street lenders have raised their interest rates during the past year. According to the comparison website Moneysupermarket.com, at the moment, the average of the five cheapest personal loans is 7.7 per cent, this is 1.2 percentage points higher than at the same time last year. In addition, lenders are rejecting far more loan applications now, only accepting customers who have the highest credit ratings.

This is backed up by research undertaken by MoneyExpert.com which suggests that almost five million people have had requests for loans or credit cards refused in the last six months. According to the company, it is those aged 25-34 that are the most vulnerable, just over one fifth of this category have been refused a credit card. The director of MoneyExpert.com, Sean Gardner, said that lenders are “terrified to lend to almost anyone.”

Yet at the moment, Volkswagen is offering loans as low as 7.8 per cent APR, Peugeot Citroen meanwhile offers finance starting at 7.9 per cent, and loans at Renault are just over 8 per cent.

The head of loans at moneysupermarket.com, is Tim Moss and he attributed the success of car finance products to two factors .In the first instance he said that personal loans are very difficult to secure these days yet with car finance the loan is secured against the car, and therefore it's much less risky for the company. Secondly, although people used to shun car finance in the past because they could always get a 6.5 per cent loan elsewhere, in today's climate they're now walking away with the knowledge that car finance might actually be less expensive than a personal loan or it is their only option.

Mr Moss also commented that on Moneysupermarket.com the cheapest personal loan rate available now would not have even made it to the top ten cheapest this time last year

It is true that car sales have dropped dramatically in recent months but according to Mr Moss, there are now some extremely competitive deals for people who are willing to shop around. He himself has just bought a Renault. Having had a list price of £21,500, he paid only £14,000 for the brand new car.

Clearly there are some good bargains to be found but it is important to research the market properly. Although car finance is certainly more competitive now, findings from Moneyfacts suggest that it is still worth checking out how the convenience of finance from the forecourt compares with other deals in the market. For example, consumers wanting a £5,000 car loan could possibly save themselves nearly £800 if they are looking for a three year deal including insurance.

Moneyfacts found that Sainsbury's bank offers this deal at a cost of almost £770 less than a similar financial deal given by Yorkshire/Clydesdale bank