Spending hours finding a car to suit your needs but failing to research how best to finance it can cost you dearly in the long run writes Geraldine Herbert
Nearly half of new car buyers will seal the deal within 30 minutes of setting foot inside the showroom, according to recent survey. But buying a car is a two stage process so it’s worth thinking about how you will fund the purchase long before you start short-listing vehicles otherwise you might find yourself lumbered with an expensive loan.
There are a range of options, including personal loans, hire purchase (HP) and personal contract purchase (PCP) to choose from.
Borrowing money from a bank, building society or credit union gives you eventual 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.
Although bank loans can appear expensive when compared to other forms of finance they do allow a buyer the flexibility of purchasing with cash and offer a greater range of repayment periods, usually ranging from six months to five years. They also extend the choice to all car dealers, not just those offering PCP deals and to second-hand cars. However typically banks limit the amount of money you can borrow for a car loan so bear this in mind when considering this option.
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 it for a three piece suite, sound system or a car is that 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.
A PCP has lower monthly repayments because you are not paying off the full value of the car and as a result are a more affordable way to get into a new car. The contract is typically structured so you pay a deposit and monthly instalments over a fixed term and at the end of the agreement you have the option of returning the keys, buying the car outright or negotiating another PCP.
Other sources of finance include credit unions. Credit unions have become a popular option over the last few years as there are no completion fees and no balloon payments.
But for those rejected by regular borrowing sources, alternative providers do operate in the market and claim that by speaking directly with loan applicants they can determine what a customer is realistically able to borrow and to establish the real reasons behind any situations which may be affecting a credit rating. Such companies provide HP and leasing options but interest rates are higher than other forms of finance.
Finally, it is important to make yourself aware of any fees that may be incurred, don’t let interest rates be the only deciding criterion. When it comes to buying always negotiate the total cost rather than a monthly repayment. Often monthly or weekly repayments can conceal an expensive deal. Also you’ll need to factor in running costs, insurance cover, warranties and breakdown cover – so don’t overstretch yourself.
Now that you have sealed the cheapest deal, enjoy your new car.
Geraldine Herbert
6th March, 2015
