Taking out a personal loan is the most popular method of paying for a new vehicle, a new report reveals.

The study, carried out by Alliance & Leicester Personal Loans, shows that approximately 25 per cent of the UK population have at some point taken out finance to buy a used car, while one in eight have borrowed in order to purchase a new car.

A further three per cent have used a personal loan to pay for a motorbike or a caravan.

"It seems that a lot of people are using a personal loan to buy a car, with 37 per cent of our borrowers taking out a personal loan specifically for that reason," Richard Al-Dabbagh, Alliance & Leicester senior personal loans manager, said.

"This isn't too surprising as the finance deals offered at most car showrooms do not compete with [high street] rates.

"A little more surprising, perhaps, is that a small but growing number of people are getting a personal loan to purchase a caravan. These might be an eco-minded few, but it seems an increasing number of people are turning their backs on airport queues."

The third most popular reason for taking out a personal loan was to undertake home improvements, with one in five taking out finance for this reason.