Thursday 19 October 2017

Here's a checklist to get you the best deal on financing your car

Why PCP doesn't have to be your only option; it's competitive out there now

In a competitive market, there are several car finance option available
In a competitive market, there are several car finance option available
Consider all your options when buying a car
Charlie Weston

Charlie Weston

To PCP or not to PCP? That is the question. Financing a new car through a personal contract plan (PCP) has rapidly become one of the most popular ways to get a new motor. Increasingly they are being used to finance second-hand purchases.

But financial experts say there are plenty of other options they can consider.

PCPs are popular because the interest rates are low and monthly repayments are manageable. But a key aspect of a PCP is the need for the car to retain its agreed value at the end of the three or five-year deal. A surge in cheap UK imports means many PCP deals may bomb out.

Also, the sheer volume of PCP deals means there will be huge numbers of cars on the market when it is time to take out a new deal.

Consider all your options when buying a car
Consider all your options when buying a car

PCPs are a modern twist on the old hire purchase agreement. Depending on the size of your deposit, your monthly payments will differ. You agree the minimum the car will be worth at the end of the deal, and commit to a certain mileage limit.

At the end of the three years, you have a number of choices. You can buy outright for the guaranteed value agreed at the start or you can hand back the keys and walk away.

The option most people take is to exchange the car for a new model. You finance this with a new PCP deal. Hopefully the agreed value of the car will be less than you can get on the market so you will have some equity to go towards a deposit for your new deal.

Check-list

The key thing to remember about a PCP is you do not own the car unless you buy it outright at the end.

The small print - the bits to remember and watch out for - include the following:

* High mileage could mean a lower minimum guaranteed value.

* A lot of wear and tear may also mean you do not get the full value agreed.

* If you have a crash and the cost of repairs is greater than 66pc of the original list price, you may not get the minimum value.

* Because a lot of the repayments are deferred, the interest costs may be low initially, but the total ends up being high over the full length of the agreement.

* Dealers and car company banks are able to offer lower interests rates for the first three to five years because they still retain ownership of the vehicle, thereby lowering their risk.

Credit unions

They have plenty of money available. Their rates are competitive, despite each one setting its own levels. Car loan rates are often lower than others, with some charging as little as 5pc.

The big advantage with this funding is that you own the vehicle, rather than leasing it, or effectively renting it as you do with a PCP deal.

Hire purchase

Car buyers don't always realise that the finance they are offered in salesrooms is a HP agreement. The key difference between HP and a personal loan is that by buying with a personal loan you own the car as soon as you hand over your money. With a hire purchase agreement, you do not own it until you pay off every last cent.

Personal loans

Banks are back trying to tempt us with vehicle loans. On a three-year €10,000 loan deal, AIB offers interest rates of 9pc, with monthly repayments of €316. The total cost of the credit works out at €1,309, according to the Competition and Consumer Protection Commission.

Permanent TSB claims you can get approval in minutes as long as have a current account with your salary going into it.

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