Car loan/finance

MusSpo13

I went into my local bank earlier this week about a car loan, I've never had a loan before and this is my 1st car. I was told that I would probably not be suitable for a car loan as my income is low but they said I could apply for 'car finance'. I was told that with this I would pay back each month like a loan but that the bank would own the car until the final payment. I looked into this a bit more myself and it seems that I would also need to pay an additional fee at the end before I would own the car ( they never told me this in the bank). I feel that this option is being pushed on me to suit the bank best and not to suit me as I was told. Does anyone have any experience of buying a car 'on finance'? All opinions are welcome even if you haven't bought a car through this.

colm_mcm

You're probably looking at hire purchase. In most cases the last instalment to buy the car is €63.49 or something small.
The difference is that it's less of a risk for the bank. With a loan you could spend the money on sweets, not pay it back and there's not a lot they can do. With hire purchase they can repossess the car, so it's less of a risk.

You're limited in terms of selling the car, it's not yours to sell until it's paid off.

The payment schedule on hire purchase is made crystal clear when you're signing the docs.


It could also be PCP they're talking about, if it's a new car, that's an entirely different ballgame.

MusSpo13

colm_mcm wrote: »

You're probably looking at hire purchase. In most cases the last instalment to buy the car is €63.49 or something small.
The difference is that it's less of a risk for the bank. With a loan you could spend the money on sweets, not pay it back and there's not a lot they can do. With hire purchase they can repossess the car, so it's less of a risk.

You're limited in terms of selling the car, it's not yours to sell until it's paid off.

The payment schedule on hire purchase is made crystal clear when you're signing the docs.


It could also be PCP they're talking about, if it's a new car, that's an entirely different ballgame.

The way it was put to me is that it's similar to hire purchase but not exactly hire purchase.
Yeah I can understand their reasoning behind it, it just feels to me as though it's of more benefit to the bank rather than benefit to me that I go with this option.
They told me if I wanted to upgrade before the car was paid off that it wouldn't be a problem.
No it's not PCP, it's not a new car.
Thanks for your help!

dennyk

Are unsecured car loans (i.e. the bank doesn't get a lien on the car title) common here? Seems like that would basically just be a large unsecured personal loan, presumably with the accompanying high interest rates due to the risk. Secured loans for cars are the norm in the US, at least; no idea if that's the case here.

OP, a secured loan with the bank retaining the car title benefits the bank in that it is less risk for them, as if you fail to pay as agreed, they can take possession of the car and sell it to offset some of their loss. It may also benefit you, however, as because there is less risk, the bank should be offering you a better interest rate than you would get on an unsecured loan, or, in your case, it allows them to offer you a loan even though they would not be willing to provide you with an unsecured loan for the same amount. The risk to you, of course, is that if you should fall behind on your payments, the bank can repossess your car.

You really need to run the numbers to see if this is a good idea.

- What is the amount of the loan, the loan term (e.g. 4 years), and the interest rate on the finance loan they are offering you?
- What's the price and value of the car and how much are you paying as a down payment? Will you be upside-down on the loan (owing more money than the car is worth) at any time? Being upside-down will make it very challenging to sell the car and pay off the loan should you need to in the future.
- If your income is low, as you said, are you sure you can you afford the monthly loan repayments, or will they be stretching your monthly finances?
- Do you currently have an emergency fund with 3-6 months of expenses (including this loan repayment) to cover any unexpected expenses or loss of income, or would a financial emergency leave you unable to pay this loan or your other obligations?
- If this is your first car, have you explored the cost of insurance (remember that it can be quite high for new drivers, upwards of a few thousand a year) and can you afford that expense as well? Have you factored in the cost of petrol, routine maintenance, and likely repair costs? Motor tax and the regular NCT tests? The price of the car itself is often only a small portion of the total cost to own one.

You may be better off saving up and purchasing an inexpensive used car with cash rather than taking this loan, unless the interest rate is low or you have an urgent need for a vehicle that you can't work around for a while by using public transit or biking to work, etc.

colm_mcm

General purpose loans are pretty common. APR with bank of Ireland was 13% or something last time I checked.

Normally it's a good idea to get a cheap car for your first, I got a brand new one for mine and regretted it. I was spending a big chunk of my disposable income on it.

MusSpo13

dennyk wrote: »

Are unsecured car loans (i.e. the bank doesn't get a lien on the car title) common here? Seems like that would basically just be a large unsecured personal loan, presumably with the accompanying high interest rates due to the risk. Secured loans for cars are the norm in the US, at least; no idea if that's the case here.

OP, a secured loan with the bank retaining the car title benefits the bank in that it is less risk for them, as if you fail to pay as agreed, they can take possession of the car and sell it to offset some of their loss. It may also benefit you, however, as because there is less risk, the bank should be offering you a better interest rate than you would get on an unsecured loan, or, in your case, it allows them to offer you a loan even though they would not be willing to provide you with an unsecured loan for the same amount. The risk to you, of course, is that if you should fall behind on your payments, the bank can repossess your car.

You really need to run the numbers to see if this is a good idea.

- What is the amount of the loan, the loan term (e.g. 4 years), and the interest rate on the finance loan they are offering you?
- What's the price and value of the car and how much are you paying as a down payment? Will you be upside-down on the loan (owing more money than the car is worth) at any time? Being upside-down will make it very challenging to sell the car and pay off the loan should you need to in the future.
- If your income is low, as you said, are you sure you can you afford the monthly loan repayments, or will they be stretching your monthly finances?
- Do you currently have an emergency fund with 3-6 months of expenses (including this loan repayment) to cover any unexpected expenses or loss of income, or would a financial emergency leave you unable to pay this loan or your other obligations?
- If this is your first car, have you explored the cost of insurance (remember that it can be quite high for new drivers, upwards of a few thousand a year) and can you afford that expense as well? Have you factored in the cost of petrol, routine maintenance, and likely repair costs? Motor tax and the regular NCT tests? The price of the car itself is often only a small portion of the total cost to own one.

You may be better off saving up and purchasing an inexpensive used car with cash rather than taking this loan, unless the interest rate is low or you have an urgent need for a vehicle that you can't work around for a while by using public transit or biking to work, etc.

Thanks for your reply!
Yes I have looked into all of this, I have been considering this with the last few months so it's not a spur of the moment decision. Unfortunately there is no public transport near where I live so buying a car is my only option. I'm just concerned that they would not even discuss a loan with me, I understand they might not give me a loan but they could at least talk me through it. It all seemed a bit rushed and trying to get me to sign up without knowing the full ins and outs.
I think I'm going to speak to someone else at the bank and get their opinion.

MusSpo13

colm_mcm wrote: »

General purpose loans are pretty common. APR with bank of Ireland was 13% or something last time I checked.

Normally it's a good idea to get a cheap car for your first, I got a brand new one for mine and regretted it. I was spending a big chunk of my disposable income on it.

The car is about 6/7 years old so it's not new. I would prefer to spent more on a reliable car than an older car that will need more repairs and an NCT every year. Also I will pay so much more in insurance on an older car so it makes more sence for me to get a better car.

colm_mcm

The cut off for insurance is 15 years. An nct is €50 or something. The reasons you're giving are the classic ones people use to sell an idea to themselves.

dennyk

Eh, 6-7 years old can be a pretty decent sweet spot for used cars, if you can afford it and you're planning to keep it for the long term. Depends a lot on what car it is and the price, though. Definitely want to do your research; best to look for a make and model that doesn't have any known major mechanical or reliability issues, is reasonably cheap to repair, and will meet your needs for the next several years (e.g. don't buy a little two-seater sports car if you're planning to start a family shortly). And of course, don't overextend yourself on the purchase; it's no help to spend more on a newer car if you're going to be straining your finances just to make the payment.

OP, don't rely solely on anyone at the bank for loan advice; they're looking to make themselves money, not looking out for your interests. Make sure you read and understand everything before signing anything; bring a financially savvy friend or relative with you to look it over as well, if necessary.

MusSpo13

colm_mcm wrote: »

The cut off for insurance is 15 years. An nct is €50 or something. The reasons you're giving are the classic ones people use to sell an idea to themselves.

I appreciate your opinion but for me right now it makes much more sense to buy a more reliable car as I am doing a lot of driving for work and I am using a family members car right now.

MusSpo13

dennyk wrote: »

Eh, 6-7 years old can be a pretty decent sweet spot for used cars, if you can afford it and you're planning to keep it for the long term. Depends a lot on what car it is and the price, though. Definitely want to do your research; best to look for a make and model that doesn't have any known major mechanical or reliability issues, is reasonably cheap to repair, and will meet your needs for the next several years (e.g. don't buy a little two-seater sports car if you're planning to start a family shortly). And of course, don't overextend yourself on the purchase; it's no help to spend more on a newer car if you're going to be straining your finances just to make the payment.

OP, don't rely solely on anyone at the bank for loan advice; they're looking to make themselves money, not looking out for your interests. Make sure you read and understand everything before signing anything; bring a financially savvy friend or relative with you to look it over as well, if necessary.

My brother is a mechanic and he's had a look over the car so it seems reliable.
I'm going to ask a family friend about the loan, she used to work in bank and she what she thinks.