Deals on wheels: forecourt financing moves up a gear

Since the banks tightened their lending policies, car manufacturers have stepped into the breach, setting up Irish-based finance houses to lend directly to customers

If you’ve been on a car dealership forecourt lately checking out a possible purchase for the new year, you might have been entranced by all the special offers available. But what does “0 per cent finance” or “€99 a month” for a new car mean? Are the deals available as good as they first appear, or should you look to your local credit union?

If you have been considering getting finance for a new car, you were likely looking at a hire purchase (HP) agreement.

There are many advantages to securing your new purchase this way, the most obvious one being that it is available – which is not something that can be said about a lot of types of finance in this environment. Since the banks tightened up their lending policies, car manufacturers have stepped into the breach, setting up Irish-based finance houses to lend directly to customers.

Last year, for example, Renault opened a branch of RCI Banque to finance purchases, while Volkswagen has its own bank ready to finance those looking to buy its vehicles. Others have linked up with the domestic banks. Ford operates its Ford Credit arm in conjunction with Bank of Ireland Leasing, as does Toyota.

Secondly, when compared to traditional personal loans, they can appear good value, with some manufacturers offering loans at 0 per cent on all new cars in their fleet.

Over at Volkswagen, the APR on Polos and Golfs is just 3.9 per cent, or 4.9 per cent on other cars in the range, while if you’re in the market for a new Ford Focus, which retails at €19,465, Ford is running an offer of a fixed rate of 4.9 per cent.

Bank of Ireland offers a rate of 8.6 per cent on amounts over €20,000, or 10.5 per cent for amounts between €7,000 and €15,000.

And as HP deals take more of a hold on the market, other options, such as personal contract plan (PCP), are emerging. Popular on the Continent, these arrangements are offered by manufacturers such as Volkswagen, and allow you to part-exchange your vehicle for a new one at the end of a HP agreement. The other options are to complete the agreement and take ownership of the car, or return the car to your dealer.

So far so good, but while HP agreements may serve their purpose, you need to understand exactly what they involve before signing up for one.

The main point to remember when it comes to HP arrangements – be it for a fridge, caravan or a car – is that you don’t own the asset until the last payment is made. So, three years and €12,000 or so later, if you can’t keep up the payments you stand to lose both the car and all the money you have spent thus far on it.