Sunday 23 October 2016

Unlock the Best car finance deal for you

John Cradden

Published 03/02/2016 | 02:30

Renault Fluence
Renault Fluence

IF you are in the market for a new 161 car, you have a few choices in terms of how to pay for it, but it pays to be aware of just what type of finance you are signing up to.

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Only lotto winners and a few other lucky souls will be able to pay for a new car in hard cash, so you have two choices: get a loan from the bank or avail of a car finance package from a dealer.

Loans from banks or credit unions, even those advertised as car loans, are invariably more expensive than the type of finance you get from dealers, which are usually in the form of hire purchase (HP) agreements or personal contract plans (PCP).

However, some banks have cut the interest rates on their car loans over the past year and there are certainly advantages to arranging your finance with the bank rather than a dealer.

The biggest advantage is that you own the car from day one; with car dealer finance, you do not own the car until you've paid off the loan. This means that if you hit repayment problems, you have the option of selling the car to help pay it off. It also gives you the flexibility to buy a used car rather than a new car, along with more bargaining power when it comes to doing a deal.

The bank rates (APR) on offer for a €20,000 loan paid back over five years range from 7.5pc with Bank of Ireland to 11.8pc from KBC. Ulster Bank charges 7.9pc while AIB sets its rate at 9.99pc. Permanent TSB's standard loan is the fourth-most expensive at 10.5pc, but has a loan rate specifically for the purchase of a car up to six years old. It starts at 8.8pc as long as the car is new or no more than two years old. If the car you are buying is between two and four years old, then the rate rises to 9.3pc, while a 10.4pc rate applies if the car is a 2009 or 2010-registered model.

It also offers a cash-secured loan where, if you have at least 25pc of the loan amount that you can deposit as a security, you can get rates of between 6.4pc and 8pc. For instance, a cash security of €5,000 cash will unlock a rate of 8pc.

You can also unlock cheaper bank rates if you open a current account with them or have one already. For instance, Ulster Bank's 7.9pc rate discounts to 6.9pc if you are a customer, while KBC customers get a 2pc discount on the bank's standard rate (9.8pc).

On the dealer side, rates for car finance are usually more competitive because some car manufacturers, such as VW, Renault and BMW, run their own 'banks' specifically to lend for car purchases, while others have pre-agreed packages with the major banks. Some makers even offer 0pc finance.

Hire purchase

If you want to borrow €20,000 under a hire-purchase deal, Opel Ireland offers 4.9pc on certain models. For instance, an Opel Adam costing nearly €19,750, paid back over five years will cost you €1,750, although you'll need to fork out a minimum 30pc deposit of €5,925.

However, remember that these loans are structured differently from bank loans. Under a hire-purchase deal, the bank or finance company owns the car and is renting it out to you. The car only becomes yours after the last scheduled payment. They are also less flexible as the interest rate is fixed for the term of the agreement.

Some banks also offer hire-purchase loans, although they seem far less competitive than some dealers as far as the rates are concerned. Bank of Ireland charges 7.3pc while AIB's rate is 8.45pc, although you don't have to stump up a deposit if you don't have it - 100pc finance is available.

In recent years, the other type of finance offered by dealers - PCP (personal contract purchase) - has become popular. A spokeswoman for VW Bank Ireland, for instance, confirms that nearly three quarters of its finance packages were PCPs last year.

It is effectively a lease as you never really own the car as such, but you pay a deposit and then pay a monthly fee for 36 months usually before there's a final 'bubble' payment. Part of the deal includes a guaranteed minimum value of the car at the end of the lease, which effectively covers the bubble payment and gives you three options: pay the bubble payment to own the car; hand back the keys and walk away debt-free; or, as most people do, use the car as the deposit on your next car and start a new PCP deal.

There are usually terms and conditions, such as an annual mileage limit and that you service it at a main dealer. PCPs seem attractive because the deposits required and the monthly payments are lower than for HP deals, but the flipside to this is that you are not really building up anywhere near as much equity on the car as you would under a HP deal. Indeed, some finance experts say that with PCP you are essentially just paying for the depreciation on a car. But that still suits some people, particularly if they like to have a new car every three or four years.

'New car and €50 a month better off'

John Galvin from Clondalkin recently drove home in a brand new 161 Renault Kadjar that he bought using a PCP (personal contract purchase) from Renault Belgard in Tallaght.

It's the third time he has driven away a brand new Renault using this type of car finance, having run two Renault Fluences before that.

He has changed car every three or four years since he won a windfall on a work lottery syndicate back in 1999, but although PCP deals suited him, he was planning to extend the finance on his previous Fluence for another two years, but then he found out about Renault's offer on its new Kadjar crossover model and decided to look into it. Based on the resale value of his three-year old Fluence, it worked out that his repayments would be €50 a month cheaper and that no deposit was needed.

"So I have a new car and, from the first of February I'll have 50 quid more in the bank," he said. "It's worked out well for me.

"In three years' time I might look at what's on offer, but the Kadjar is a 1.5 diesel so it's cheap to tax and so long as it doesn't give me any trouble, I'm happy."

Irish Independent

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