Saturday 3 December 2016

The cheapest - and priciest - car loans

Some banks have halved their interest on car loans - but others haven't budged, writes Louise McBride

Published 17/01/2016 | 02:30

What's the cheapest way to borrow money for your dream car?
What's the cheapest way to borrow money for your dream car?

The cost of borrowing money from your bank to buy a car could have almost halved over the last year - as some banks have started to move away from the sky-high rates they have charged on such loans in recent years.

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A car loan from your bank could therefore be several grand cheaper than it was this time last year - depending on the bank and the size of the loan.

For example, it is now almost €7,000 cheaper to get a €50,000 loan from Bank of Ireland to buy a car than it was this time last year. A €20,000 loan is €3,000 cheaper with the bank than it was in January 2015. This is because Bank of Ireland has chopped its interest rate on such loans from 12.8pc to 7.5pc.

Bank of Ireland has also cut the interest rate it charges on its hire purchase agreements - another type of car finance - over the last year. This will save a car buyer almost €800 in interest on a €20,000 hire purchase deal - and almost €2,000 in interest on a €50,000 agreement.

Another bank which has cut the interest it charges to those borrowing money for a car is Ulster Bank. It is about €1,100 cheaper to borrow €20,000 from Ulster Bank today than it was this time last year. It charges 7.9pc interest on a €20,000 car loan today; 6.9pc if you qualify for its discounted rate. Last year, it charged 10.3pc interest on a similar loan.

Quicker turnarounds for car loans have also become more common with some banks offering approval for finance within three hours. Worryingly however, these three-hour turnarounds are being offered by some of the more expensive banks for car loans: Permanent TSB - which works out pricey if you're borrowing to buy a car which is more than six years old, and AIB.

Along with KBC, AIB and Permo have not reduced the interest charged on car finance over the last year. Last year, Permo was the cheapest bank to get a €20,000 car loan from - today, it is the third cheapest because it has lost out to Bank of Ireland and Ulster Bank.

Car finance has largely cost more at the bank than the dealer over the last few years as the interest charged by banks on personal loans has been very high. Last year, you could have paid almost €11,000 more to borrow €50,000 to buy a car had you gone to a bank instead of a dealer.

Car finance can still cost more from a bank than a dealer today - but, depending on the bank, the difference might not be as marked as it was previously.

The Sunday Independent examined the car finance offered by the main banks as well as the hire purchase deals offered by some of the main dealers. We found that it could cost you up to €6,400 more to borrow money to buy a car from a bank instead of a dealer. Choose the right bank however and the car finance could be only €45 more expensive at the bank than at the dealer's.

Borrowing €20,000

Up to €4,452 more expensive at the bank

It costs more than €20,000 to buy a new Volkswagen Golf or Nissan Qashqai - two of the best-selling cars last year. Let's say you want to borrow €20,000 of the price tag - over five years. The most expensive way for you to do so is through a personal loan from KBC.

KBC charges 12pc interest should you borrow €20,000 from it to buy a car - or 9.8pc interest if you repay the loan from a KBC current account, according to a spokeswoman for the bank. At the higher 12pc rate, it would cost you almost €6,325 to borrow €20,000 over five years. That's three times the interest charged by some dealers on the same amount of car finance - and almost €2,500 more than what the cheapest bank is charging.

AIB charges 9.9pc interest on a €20,000 car loan, making it the second most expensive in our survey. At that rate, it would cost you €5,236 to borrow €20,000 over five years.

The cheapest bank to borrow the money from is Bank of Ireland. Under its 7.5pc interest rate, a €20,000 loan would cost €3,906. Ulster Bank was the second cheapest for bank loans - charging €4,278 in interest under its 7.9pc rate.

The interest rate charged by Permo depends on the age of the car - the newer the car, the cheaper the loan. Permo, for example, charges 8.8pc interest if the car you're buying is no more than two years old - at that rate, it would cost €4,620 for a €20,000 car loan. However, you'd pay €5,437 in interest if the car you want to buy is six years old - as 10.4pc interest would be charged. Permo's cash-secured loans work out cheaper than its car loans - but to get them, you must have savings built up which you can secure your loan against.

Cheapest €20,000 finance

The cheapest way to borrow €20,000 to buy a car is to get a hire purchase deal from Renault Finance, according to our survey. Renault Finance charges as little as 3.9pc interest on a €20,000 five-year hire purchase deal - though you must pay a 25pc deposit to secure that rate. Under that deal, it would cost €1,873 (including interest and hire purchase fees) to borrow €20,000 for a car. You are restricted to buying a Renault if you take up this 3.9pc finance. (This is typical of any hire purchase offered by a dealer - your choice of cars is limited to those sold by the garage).

Renault also offers interest-free loans - which would mean you could borrow €20,000 for free. However, to qualify, you must pay a 20pc deposit and repay the loan within three years. Still, if you're interested in a Renault, have a large deposit handy - and are in a position to repay your loan within three years, this is the cheapest way you could raise the money you need to buy a car.

BMW Financial Services charges 7.2pc interest on a €20,000 hire purchase deal. At that rate and including hire purchase fees, it would cost €3,883 to borrow €20,000 over five years to buy a car. Bank of Ireland charges 7.3pc interest on its hire purchase - which would cost €3,798 in interest and fees if borrowing €20,000.

Most expensive for hire purchase

First Citizen Finance, a finance company run by Permanent TSB Finance, is the most expensive for hire purchase, according to our survey. It charges 8.5pc interest on hire purchase - so it would cost €4,440 (including interest and fees) to borrow €20,000 over five years under its HP deal. At 8.36pc, AIB is also expensive for HP - a €20,000 deal would cost you €4,352.

Borrowing €50,000

Up to €6,400 more expensive at the bank

Sales of sports cars shot up last year - in particular the Audi TT. You could pay more than €50,000 to buy a new Audi TT, depending on the exact model.

The most expensive way to borrow €50,000 to buy such a car is through KBC. A five-year loan of €50,000 costs either €15,812 or €12,844 with KBC - depending on whether you qualify for the bank's 'discounted' rate (where you repay the loan from a KBC current account) or not.

AIB is the second most expensive bank to borrow that money from - it charges €13,090 in interest on a five-year car loan of €50,000.

Permo charges between €11,549 and €13,593 in interest, depending on the age of the car.

Bank of Ireland offers the cheapest bank loan - at 7.5pc interest, it costs €9,766.60 to borrow the €50,000 over five years. Ulster Bank doesn't provide car loans of €50,000 - the maximum loan it offers is €40,000.

Renault Finance and BMW Financial Services were the cheapest in our survey for car finance of €50,000. Most Renaults, however, are below the €50,000 price range. It would cost €9,452 to borrow €50,000 over five years from BMW under its hire purchase deal. Bank of Ireland's hire purchase deal would cost €9,497 - only €45 more than BMW's. A €50,000 hire purchase deal cost €10,766 with AIB and €11,097 with First Citizen Finance.

Caveats

Most banks will offer you a loan should you be borrowing money to buy a car - but some will also offer you hire purchase, where you don't own the car until you make the last repayment. Head to a dealer for car finance and you usually will be offered either hire purchase or a personal contract plan (PCP). A PCP is a type of hire- purchase agreement.

Hire purchase doesn't always work out cheaper than car loans - so shop around dealers.

Remember too that you have the freedom to shop around for the car you want should you go for a bank loan instead of a dealer's car finance.

The PCPs offered by dealers can appear very attractive because of the low monthly repayments. However, it is important to understand how these products work before you sign any agreements. You won't own the car until you have made the final payment - which could be could be a large balloon payment.

PCP's are the "least flexible forms of finance", according to the State consumer watchdog, the Competition and Consumer Protection Commission.

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