Joyce Fegan seeks expert advice on steps to take to ensure you get the best value for your money
Second-hand cars are a popular buy due to how quickly the value of a brand new vehicle depreciates as soon as it drives off the forecourt. Just because you’re buying a used car though doesn’t mean it’s cheap, so you still have to finance it.
Some options include a loan from a bank, a credit union, or finance from a car garage. There are pros and cons to all of the above options so shop around for credit before you shop around for your car.
AA Ireland advises consumers to buy in cash but if that isn’t always possible, then look around for various credit options.
“The best way to buy a car is with cash. Easy advice to give but of course most of us will need to finance the car in one way or another. If you need to borrow part of the amount, don’t automatically take the dealer’s finance. It’s always worth getting alternative quotes — preferably before you start viewing cars so you know what you can afford,” says Conor Faughnan of AA.
Many banks and lending institutions offer special rates for car loans, which vary depending on the amount you wish to borrow.
Before you begin your search for your second-hand vehicle you can log on to the main banks’ websites and use their online calculators to get an estimate quote.
Furthermore, if you are a member of a credit union, you can also log on to some of their localised sites, depending on where you are a member of, and see what their rate is. The rates vary from union to union and some do not have online calculators so you may have to drop in or else call them up to find out what you could borrow.
As advised by AA Ireland, it is a good idea to shop around with banks for loan rates instead of taking the finance offered to you by a car dealer.
The Competition and Consumer Protection Commission highlight that finance from some garages might not actually equate to a loan, and instead are only hire purchase agreements.
“Many ‘car finance loans’ offered by garages and some lenders are actually hire purchase agreements. Hire purchase is different from a personal loan because you don’t own the car until you have made the last repayment. So check what you are being offered first and know what you are signing up to.
“The main reason you might choose a hire purchase agreement is convenience, as the garage selling you a new car may also arrange your finance. So, it saves you having to visit your bank, building society, or credit union to arrange a personal loan,” advises the commission.
Hire purchase agreements, even though they come when you buy direct from a garage, are something you need to watch out for if you buy your car privately.
“Check the registration documents of a second-hand car to make sure that it is not already owned by a finance company,” warns the Competition and Consumer Protection Commission.
“If this is the case, the person trying to sell you the car does not actually own it and does not have the right to sell it to you — even though they may have the log book and registration documents.
“If you buy a car under an existing car finance agreement, you run the risk of the car being repossessed by the owner (the finance company). There is a much higher risk of this happening if you buy from a private seller so be sure to check,” advises the commissions.
If you are buying from a private seller and want to run a background check, Hire Purchase Information Ltd keep records of cars subject to an agreement. You can request a copy of a vehicle’s finance report through their website (www.hpifirst.ie) for between €9.99 and €14.99.
Whether you’re buying privately, through a small garage, or a large dealer it is a good idea to have your credit set up in advance because you might find a great deal but miss out because you didn’t have your money organised prior to your shop.
In terms of the steps you need to take, go through your budget first and see what you can afford to make in monthly repayments, once you have done this check out the various lending rates from banks, a garage and a credit union. This is a matter of the chicken-before-the-egg, in that you’ll need to apply for the loan and have it approved before you even find a car and make an offer. However, when you do find a car you can then make an offer knowing what your budget and cash availability are.
You can then leave a deposit and arrange to transfer the rest of the money, by bank draft, money transfer, or else in cash depending on the amount. Most banks need a minimum notice period if you are withdrawing amounts larger than €5,000.
When arranging car finance, hidden fees are another thing to consider.
“There are no fees or charges with credit union loans. The interest you pay is the full cost of the loan. With loans from banks or building societies there may be other fees or charges,” states the Competition and Consumer Protection Commission.
For example some lenders charge an administration fee for setting up a loan. This can go up to €75. Also if you have a fixed-rate loan, most lenders will charge a fee if you repay the amount ahead of schedule or want to change to a variable rate.
Another thing to consider when borrowing money, according to AA Ireland, is that a credit score may have to be run on you.
“Be prepared for the car finance lenders you approach to do a complete credit rating on you, ask about employment status, and the amount of money you have for a down payment,” says AA Ireland.
“Younger drivers who don’t yet have a credit score should talk to their bank or credit union about options for building up a credit score. Your parents may also be in a position to co-sign the loan which the car finance lenders can talk you through,” adds the body.
All in all, your options for financing the purchase of your second-hand car include cash up-front, a loan from a bank or a credit union, or finance from a garage, but in that incidence be sure to clarify whether it is a hire purchase agreement or not. Whatever option you choose, be sure to shop around for rates depending on the amount you are borrowing; and if you need a loan, it is best to have it approved before you make an offer on the car.
© Irish Examiner Ltd. All rights reserved