You can save €3k on a new car
WITH winter fast approaching -- and the latest Dublin floods still fresh in our minds -- you might be eyeing up a new 4x4 in the hope it will get you through any freak weather that's thrown at you. If so, chances are you'll need at least €30,000.
Borrow from the wrong bank or car dealer, however, and you could pay as much as €3,000 more than you need to.
You usually have two choices when borrowing money to buy a car -- a bank loan or a hire purchase (HP) agreement. If arranging your car finance through a car dealer, it will usually be under HP.
With hire purchase, you pay monthly repayments for the hire of the car -- and you don't own the car until the final repayment is made. If you're getting your car finance from a bank, it will either be through a car loan or hire purchase. The main advantage of a loan over hire purchase is that you can sell your car at any stage to try repay that loan. However, if your car is under hire purchase, you can't sell it to repay what you owe.
So what type of car finance works out cheaper -- hire purchase or bank loans? To find out, we asked banks and car dealers how much it would cost to borrow €30,000 over five years to buy a car.
We included AIB, Bank of Ireland, National Irish Bank, Permanent TSB and Ulster Bank in our survey -- as well as Nissan, the Merlin Motor Group, BMW Financial Services and Windsor Motors.
AIB, Bank of Ireland and Permanent TSB offer hire purchase as well as standard car loans. National Irish Bank and Ulster Bank offer only car loans. The car dealers we contacted offer hire purchase.
Our survey found that hire purchase usually works out cheaper than a bank loan when raising money for a car, but this depends on where you arrange your finance -- and if you can meet all the hire purchase repayments.
The cost of HP can spiral out of control if you can't afford your repayments and need to rearrange the agreement -- or if the car is repossessed.
"You are entitled to a list of all the additional fees and charges such as repossession, documentation, rescheduling, and penalty for missed payments, so make sure you get this before signing the hire purchase agreement," said John Shine of the consumer watchdog, the National Consumer Agency.
THE CHEAPEST WAY TO BORROW €30K
HP with BMW Financial Services -- cost €6,452
Under BMW's hire purchase agreement, the interest rate on €30,000 is 8.39 per cent. If you repay that money over five years, the monthly repayments work out at €607.57, which brings the total cost of your €30,000 finance to €6,452.20. These repayments include a documentation fee of €75 and a completion fee of €75 -- fees usually charged by car dealers and finance houses.
Bank of Ireland's hire purchase agreement was the second cheapest offer. The interest rate on its €30,000 hire purchase plan was 8.6 per cent and the monthly repayments over five years worked out at €612, bringing the total cost of the finance to €6,720.
Bank of Ireland's hire purchase plan works out a few thousand euro cheaper than its car loans.
Get a variable loan of €30,000 from Bank of Ireland, and you'll be hit with an interest rate of 11.7 per cent and monthly repayments of €654.02, bringing the total cost of your car loan to €9,421.20.
THE PRICIEST WAY TO BORROW €30K
Car loan with Permanent TSB -- at a cost of €9,484
Permanent TSB charges an interest rate of 12 per cent on a term loan of €30,000. At that rate, the monthly repayments over five years work out at €658.07, bringing the total cost of Permo's loan to €9,484.20 -- about €3,000 more expensive than BMW's hire purchase offer.
Permanent TSB also offers a hire purchase plan -- but at a hefty interest rate of 10.9 per cent. Under Permo's hire purchase, the monthly repayments on €30,000 over five years are €643.19, bringing the total cost of the finance to €8,591.40 -- cheaper than Permo's term loan, but still a few grand more than what others are offering.
The second most expensive in our survey for €30,000 car finance was Bank of Ireland for its variable loan, followed by Ulster Bank for its fixed loan and National Irish Bank for its variable loan. Ulster Bank charged 11.9 per cent interest on a fixed loan of €30,000, while National Irish Bank charged 11.47 per cent interest on a variable loan.
AIB charges 10.14 per cent on its car loan and 10.32 per cent on its HP. Most of the dealers and motor groups we contacted charged interest of about 10 per cent or more on a hire purchase plan of €30,000.
Nissan quoted us 9.75 per cent, Windsor 10.6 per cent and Merlin 10.9 per cent.
It therefore cost more than €8,000 to arrange €30,000 in car finance through each of these three dealers -- at least €1,500 more than BMW.
You can often get cheaper HP rates from dealers if you're buying specific cars from them -- and if you pay a sizeable deposit.
Sunday Indo Business