Borrowers must compare APR, total loan amount, deposit, loan term, fees, ownership conditions and affordability before exploring the car loans in Ireland marketplace. Hire Purchase, Personal Contract Purchase and Personal loans are the most common vehicle finance options.
Each works differently and has unique qualification criteria. Therefore, the lowest monthly payment option may not be the cheapest option. Therefore, one must compare costs, functionality and terms of each option before choosing the right option.
What is car finance?
Car finance means borrowing money from a lender, dealership or a bank to buy a vehicle and repay in fixed instalments with interest. Instead of paying the amount upfront, car finance grants the flexibility to split the purchase cost.
You can divide the cost and pay equal and affordable instalments. It releases the pressure on the budget. It helps you buy a car without affecting savings.
You usually need to provide a deposit, which is 5-10% of the car’s price, to finance the car. It reduces the overall amount you pay on the loan.
What are the types of car finance?
There are 3 main types of car finance solutions in Ireland, namely:
- Hire purchase: The finance company purchases the car, and you repay the dues in instalments.
- Personal loans: You contact a bank, lender, or credit union for a loan
- Personal Contract Purchase: You pay a deposit on the loan and make fixed instalments to cover the rest. It has lower monthly payments. By the end, you can purchase the car by paying a balloon payment, return the car or use the leftover equity to finance another car.
How does a loan broker help choose the right car finance option?
A loan broker may help you choose the right car finance option. They do so by understanding your needs, financial circumstances and connecting you with the right lender or agents. Here are other reasons to apply for car loans from a broker in the Ireland marketplace:
- Multitude of verified lenders: A broker holds a wide network of reputed lenders and agents. It may help you get the best one for your needs.
- Matches your budget: A broker analyses your financial affordability and matches you with lenders with whom you are most likely to qualify.
- Help save time: Brokers do the research and assist with application and paperwork. Individuals buying a car for the first time may benefit by contacting a broker.
- Negotiate terms: Brokers share the bond with lenders, and they may negotiate terms on your behalf. It may help if you struggle to repay the dues.
- Split the jargon for you: A loan broker breaks down complex terms and explains every detail about the loan. They may even analyse and help spot hidden charges, early repayment penalties and other costs which may increase overall payments.
What to Check Before Choosing Car Finance in Ireland?
Here are some aspects to check before choosing a car finance option in Ireland:
1) Check APR, not just interest rates
The APR, or annual percentage rate, is one of the most useful figures. It reflects the interest rate and certain mandatory charges associated with the credit agreement.
When comparing the car finance options, check:
- Whether the APR is fixed or variable
- Whether the APR is representative or the final one
- Whether the rate depends on the vehicle type
- Whether the advertised APR applies to the borrowing amount or overall
2) Total repayable amount
A low monthly payment may include a higher overall cost. Before deciding, calculate:
Total cost=Deposit+ monthly payments+ final payment+ mandatory fees
Accordingly, you must ask relevant questions to the dealer/lender:
- Price of the car
- Deposit or trade-in requirements
- Total cost of credit
- Amount borrowed
- Number of repayments
- Monthly repayment
- Final balloon payment (if relevant)
- Documentation and other arrangement fees
Understanding these aspects is important because a loan type may appear cheap. For example, a PCP could appear cheaper because its monthly repayments are lower.
However, the borrower may still have to pay a substantial final balloon payment to own the car. That payment must be included when comparing the PCP with HP or a personal loan. It may make PCP a little more expensive.
3) Deposit requirements
A deposit is an upfront amount you may be required to pay on a car finance agreement. The higher the deposit, the lower the total payable amount. It may be especially beneficial if exploring car finance quotes for bad credit history. Here, you must compare a few aspects:
- The minimum amount required
- Whether the lender accepts the trade-in
- Whether dealer deposit contributions are conditional according to the financial product.
- Check whether the deposit reduces the car price or only the amount financed
- Whether the deposit is refundable if you are rejected for car finance
- How much does the promotional content affect the APR?
A deposit should be affordable without compromising rent, mortgage payments, essential bills or emergency savings.
4) Loan term
Longer loan terms generally reduce the monthly repayment. However, it can increase the total interest paid. You are left with repaying finance dues even if the car has significantly depreciated.
Compare the same borrowing amount over different terms. Consider:
- Monthly repayment
- Total interest
- Total amount payable
- How long you will keep the car
- Whether your income is likely to remain stable
- The possibility of selling or changing the car before the agreement ends
A loan should not be extended to make an unaffordable car appear affordable. Therefore, contacting a car finance broker online in Ireland may help. It may help you determine the right repayment term according to your current finances and monthly expenses.
5) Ownership rights
With a personal loan, you generally own the vehicle from the beginning. With HP and PCP, the finance company usually remains the legal owner until the required payments and any final amount are paid.
Ask:
- Who is the real owner of the car during the agreement?
- Can you sell the vehicle before clearing the finance amount?
- Do you need to provide a settlement figure?
- Can a car be written off? If yes, in what circumstances?
- Are there restrictions on modifications in PCP finance?
- Can you trade the car in early? In what conditions?
Never assume that making most of the monthly payments means you automatically own the vehicle.
Bottom line
Understanding and comparing these options before taking a car loan may help you choose the right option. Determine and compare APR, total costs, interest rates, ownership requirements, balloon payment, etc., before borrowing.
It may help you determine which option you are likely to qualify for and which suits your financial equation well. Common ways to finance include Hire Purchase, Personal Contract Purchase and Personal loans.
FAQs
- Can I repay a car finance loan early?
Yes, you may repay a car finance loan early if the lender/dealer allows you to. Otherwise, doing so may attract early repayment penalties. It may make the loan costly.
- Is it possible to get a car on finance with bad credit?
Some lenders may consider applicants with adverse credit, but approval is not guaranteed. The APR and interest costs may be higher. Borrowers should avoid unaffordable repayments and compare total cost rather than focusing only on acceptance.
- What should PCP borrowers check before applying?
PCP customers should check APR, total amount payable, interest, monthly payment amount, ownership rules, and early repayment possibilities. They must also check mileage limits, servicing requirements, and whether they can afford the balloon payment.
- Is PCP cheaper than HP?
Not necessarily. PCP may have lower monthly repayments. This is because a significant amount is deferred until the end. Compare the deposit, monthly repayments, balloon payment, fees and total amount payable before applying.
- Can I return a car bought on PCP?
Yes, you can return the car if bought on PCP. Early termination and return rights depend on the agreement. Check the terms before going ahead.