Want to drive a good deal on car finance, do some research and shop around writes Geraldine Herbert
There are three main options for financing a new car; a personal/car loan, buying on hire purchase or through a personal contract purchase (PCP).
1) Borrowing money from a bank, building society or credit union gives you ownership of a car. The best way to compare loans is on APR – the annual percentage rate as this allows you work out how much a loan will cost you over its lifetime.
2) Hire purchase is the simplest form of finance outside of a personal loan. With HP, you pay a deposit upfront (often 10%) and then pay the rest off in monthly instalments over an agreed period. After the last payment you own the car. It is worth remembering with any HP contract, be if for a 3 piece suite, sound system or a car is you do not own the asset until the final payment is made. Two years down the line and €15,000 later if you can’t keep up the payments you stand to lose both the car and all the money you have spent thus far on it.
3) With a PCP contract you pay an initial deposit of between 10% and 30%, which is typically funded by a trade-in of your existing car. The lower the deposit the higher the monthly repayments. The dealer agrees a fixed amount known as the minimum “guaranteed future value” which is essentially an estimate of the car’s value at the end of the PCP contract. The monthly repayments are then based on the difference between the purchase price of the car, minus the deposit, and the minimum guaranteed future value. Interest rates depend on make and model. However unlike HP or a bank loan at the end of the agreement you have the choice of whether to make that final payment or not. At the end of the contract you have three choices: pay the balance and own the vehicle, hand back the keys or put the money towards a new car.
Buying a new car can be a daunting task but remember knowledge is power so use comparison sites to know exactly what your budget will get you. When it comes to buying always negotiate the total price rather than a monthly repayment and don’t underestimate the value of free servicing or an extended warranty. Most importantly alwaysbe willing to walk away, remember, you really are in the driving seat.
Geraldine Herbert
29th January, 2014
