When it comes to financing the purchase of a car, many people simply look for the lowest rate on offer and believe it to be the best option.
Headline rates may attract the most attention, but the devil is very much in the detail. Many ‘car finance loans’ offered by garages and some banks are actually hire purchase agreements.
The main difference between using a personal loan and a hire purchase agreement to buy a car is that with a personal loan you borrow money, pay for your car, and own it immediately. With a hire purchase agreement, you don’t own the car until you make the final repayment. This means you cannot sell the car if you run into problems making your repayments.
If the motor dealer is arranging the hire purchase agreement, the motor dealer acts as an agent for a finance company and earns commission to arrange the finance for you. In this case, the motor dealer is acting as a credit intermediary and must be authorised to act on behalf of the finance company.
When you use a hire purchase agreement to buy a car, the motor dealer sells the car to the finance company. The finance company then rents the car to you for an agreed period of time in return for a set monthly repayment over a number of years.
Watch out for the range of additional fees and charges which you may incur as part of a hire purchase agreement. This would include a documentation fee (for setting up the agreement) and completion fee (a fee charged to end the agreement and pass ownership to the car purchaser). If you run into difficulty in meeting the terms of the hire purchase agreement, you may be charged a penalty fee for missed repayments, a rescheduling fee (if you need to change the terms of the agreement) and a higher rate of interest may be charged on any repayments which you missed.
The conditions of some hire purchase agreements result in monthly payments not being evenly spread out and you may pay less in the earlier months of the agreement. This can make your monthly repayments appear more affordable. However, you may have to pay a large final payment (known as a balloon payment) at the end of the term, a payment you may not have budgeted to meet. It can be a real sting in the tail for some.
Thankfully, a car loan from your local credit union is much more straight forward. You borrow the money from the credit union, you pay for the car and you own the car immediately. You agree a repayment schedule with the credit union. If you run into difficulty, you can talk to the credit union to see if you can come to an agreement on the repayment terms. Should you be in the happy position of being able to repay the loan early, you may do so without any penalty charges.
Having arranged finance with the credit union in advance of going shopping for a car also puts you in a stronger position. It helps to know exactly how much you have to spend and because you are not going cap-in-hand to the dealer, you are effectively a cash buyer and you may be able to negotiate a better deal.
And finally, we are not ageist! You can buy whatever age car you want!
If you’re thinking about your options for financing a car purchase, look no further than your local credit union. Find us online and avail of our repayment calculators to help you decide. Laois Credit Unions:(Abbeyleix, Durrow, Mountmellick, Mountrath, Portarlington, Portlaoise and Rathdowney)