Can you explain how car loans work in Ireland?
Car loans in Ireland are available from direct lenders, banks and dealers. Auto loans are personal loans that online lenders and banks provide, but banks require you to have a strong credit history. Online lenders are known for providing car loans in Ireland to subprime borrowers as well. Dealers also finance cars through hire purchase and personal contract purchase.
Each financing option has its own pros and cons. Borrowers are enjoined to carefully assess the features of each option before deciding to borrow money. Before determining which financing option will help you, you need to understand how they work.
Financing options for your car
Here are the financing options that you can consider for your car:
Personal loans for a car
Personal loans for car are available from direct lenders, credit unions and banks. There is no doubt that a bank can offer you the best interest rate, as you can leverage your relationship with them. They usually accept applications from good credit borrowers. If your income is not stable or your credit history is not up to scratch, you will most likely be rejected. Banks do not offer dedicated car loans. They offer personal loans that can be used to purchase a car. The best thing about these loans is that you will retain the ownership of your car right from the first day.
If your credit history is less than perfect, you will have to rush to lenders to borrow money. Online lenders can provide you with bad-credit car loans at competitive interest rates. You will pay down the debt over an extended period of time in fixed monthly instalments.
Since your credit history is not so stellar, you will be charged higher interest rates than good credit borrowers. If you find that the offered deal is unsuitable for your budget, you can take out a car loan from a credit union. Few credit unions provide car loans, but they do if you are a member. Borrowers with credit histories might be accepted, but high interest rates are charged.
Features
- You might need a deposit. Some lenders offer loans without any down payment.
- You can buy your car outright. Ownership remains with you from the day of purchase.
- You will pay down the debt in fixed monthly instalments.
Pros and cons
- You own the car right from the date of purchase.
- There are no conditions related to mileage.
- Interest rates are competitive.
- Some lenders may charge interest rates for overpayments.
- Monthly repayments will be higher than a personal contract purchase.
- You must have a good credit history to secure lower interest rates.
- Although the ownership rests with you from the day of purchase, lenders have the upper hand. They can repossess your car if you default on a few repayments in a row.
If you decide to take out personal loans, you should compare the total cost across lenders and credit unions so you can choose the most affordable deal. Every lender has their own criteria to assess the risks involved in lending you money. If they find you highly risky, you will be charged high interest rates.
Hire purchase
Hire purchase is dealership financing. Car dealers provide this financing solution to buyers irrespective of credit histories. They work the same way as personal loans, except that ownership gets transferred to your name at the end of the contract.
Features
- You will need a 10% deposit. A larger deposit is required when your credit history is not impressive.
- You will pay down the debt in fixed monthly instalments.
- Ownership gets transferred only after the last instalment.
Pros and cons
- No mileage restrictions are imposed.
- Monthly repayments are fixed, so you can easily manage your debt.
- The cost of ownership will be less than a personal contract purchase.
- Monthly repayments will be higher than a personal contract purchase.
- You will lose the car if you fail to repay the debt on time.
Both hire purchase and personal loans can be good financing solutions. Compare their costs and understand your needs, and then decide which one seems to be the best option for you.
Personal contract purchase
Personal contract purchase is also available from car dealers. It is aimed at those buyers who want to upgrade their cars frequently. This comes with flexibility. You can own the car by making a full balloon payment at the end of the contract, or you can return it, or you can trade it in.
Features
- Monthly repayments cover only depreciation.
- You will need to pay a deposit of at least 10%.
- The balloon payment is made at the end of the contract if you want to own it.
Pros and cons
- Monthly repayments are small.
- Flexible contracts
- Exceeding mileage limits will impose penalties.
- The risk of negative equity is high if the car value falls below the money owed.
The final word
Car loans in Ireland are not one-size-fits-all. There are various types of financing options that can help you purchase your car. All those financing options work differently. You should carefully understand the pros and cons before choosing a suitable option for you.
FAQs
Which one is best: personal loans, HP and PCP?
None of them is the best. It all depends on your financial circumstances and priorities.
What is a balloon payment?
It is a large lump sum which you pay at the end of a PCP contract if you want to own the car. Otherwise, you can return the car or trade it in.
Is PCP available for used cars too?
No, PCP is offered only on brand-new cars, not old cars, but personal loans and HP can be used to finance secondhand cars.
