Sunday 19 November 2017

Buyers turn to credit unions when loan deals hit the skids

Whether you are buying a new car or a second-hand one, getting your hands on the funds for that dream motor is a big challenge

IT has been obvious for some time that shortage of finance for car purchases is a major obstacle for buyer and seller.

Alan Nolan, the chief executive of the Society of the Irish Motor Industry (SIMI), says the industry is working hard but it is difficult.

"If someone wants to buy a car and if they are in good financial standing then the dealer will stand on his head to get people finance," Mr Nolan said.

In the past year-and-a-half four companies have all left the motor finance market -- GE Money, Friends First, Lombard Ireland and Bank of Scotland (Ireland).

This has left AIB, Bank of Ireland and Permanent TSB as the dominant market players.

But these three banks do not have the market to themselves. Car distributors have stepped into the breach with finance deals, while credit unions have emerged as huge players in the motor finance market.

Almost a third of all car buyers secured a loan from their credit unions, making these co-operatives one of the most significant sources of motor lending.

A recent survey of 50 credit unions, carried out by the Irish League of Credit Unions at the request of this newspaper, showed that the average annual percentage rate (APR) for a motor loan is 7.1pc.

A sample of the rates charged shows that the Castlebar Credit Union charges 7.5pc for car loans, while at Larkhill and District in Dublin the rate is 6.75pc. St Anthony's and Claddagh Credit Union in Galway has a 6.5pc rate.

Mr Nolan said the most recent SIMI survey showed that credit unions were now the single biggest source of car finance in the economy, with about one-in-three car loans being advanced by these lenders.

But banks and other finance houses are still big suppliers of motor finance.

A survey of bank lending rates carried out by this newspaper shows the main lenders are offering a variety of deals.

Permanent TSB offers customers hire-purchase finance, which means you do not own the car until all the payments have been made, along with personal loans.

The interest charged on the loan rates tends to be high compared with the hire-purchase arrangements.

Finance houses like hire-purchase deals, and so offer cheaper interest rates because they retain ownership of the car until you have made all the payments.

Permanent TSB's Motorplan Rental Purchase -- which is a hire-purchase deal -- has a rate of 8.9pc for new cars, and 9.9pc for used cards. The maximum finance term is five years.

When it comes to a personal loan to buy a car, the lender charges interest of 14pc for loans of less than €5,000, falling to 9pc for loans of more than 12pc.

And Bank of Ireland (BoI) insists it is very much open for motor business.

If you want to borrow less than €7,000, BoI charges you 13.5pc. Amounts like this can be borrowed for between a year and five years.

For amounts greater than €7,000 you will have to take out a hire-purchase package, where the interest rate is 8.6pc for someone borrowing €20,000.

AIB offers loans, leasing and hire purchase for car buyers.

A typical €15,000 four-year variable interest rate car loan will have an interest rate of 10.5pc, according to a spokesman for AIB.

This means the monthly repayments will be €381.

If the interest rate does not vary during the term of the loan the total cost of credit of this loan (the total amount repayable less the amount of the loan) would be €3,288.

A typical €15,000 four-year fixed interest rate hire-purchase agreement will have monthly repayments of ¿381 and an interest rate of 10.87pc.

Customers can choose repayment terms from one to five years.

Ulster Bank offers loans of between €1,500 and €40,000 for buying a car.

The loan rate is fixed so the customer knows what to budget for each month. A typical interest rate is 12.24pc, a spokeswoman said.

This means that someone who borrows €7,000 over five years would have monthly repayments of €156.66.

The total cost of credit (i.e total amount repayable less the amount of the loan) will be €2,399.60

Repayments can be spread over a range of terms from one year up to a maximum of five years (for loans less than €12,000), or up to a maximum of seven years (for loans greater than €12,000).

Some car distributor companies have stepped in to provide finance for the purchase of new cars in a bid to counteract the reluctance of banks to lend. And these deals tend to have lower interest rates than those charged by banks.

Volkswagen has a 6.75pc rate to support the buying of its Audi, Skoda, Seat and Volkswagen brands. These deals are hire-purchase agreements. Ford Ireland and Mitsubishi are also offering competitive deals for those prepared to buy new.

The Government's car scrappage scheme has made buying a new car an attractive option for those who are trading in a car which is 10 years old or more.

Many distributors are adding in their own scrappage deal.

Take Renault, for example. The French automaker offers a Scenic 1.5dCi 86 Royale for €23,190. But you can subtract from this price the government scrappage scheme allowance of €1,500, a dealer scrappage offer of €1,500 and a trade-in allowance of €2,500.

This takes the price down to €17,690, according to Renault.

Volkswagen offers a Golf Comfortline 1.6TDI, five door, for €24,570.

Under this financing offer, which is a hire-purchase deal, you will pay an interest rate of 6.75pc.

If you have a deposit of €6,400, or a trade-in valued at this amount, your monthly repayments will be €428. But you will not own the car until you finish paying for it.

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