Research key to getting best car loan deal

Motorists should take their time finding the most suitable financing, writes Claire Shoesmith

With almost half the new cars sold in the Republic being driven off the forecourts in the first three months of the year, now is the time to start thinking about what you want to spend the next few years driving round in. If one of the television adverts that purports to advertise car brands but that feature slinky ladies or mountain scenery hasn't yet caught your eye, then it's definitely time that you went for a few test drives.

However, before you indulge in what is probably one of the most fun parts of buying a car, you need to consider how you are going to pay for what, after your house, is most likely the biggest purchase you will make. While some may be lucky enough to have the reserves to buy the car outright, most of us will probably be looking for someone to help buy it.

There are plenty of options to finance both new and used cars,with the most popular being loans and hire purchase agreements. Leasing is also popular among business customers as payments can be written off against a company's accounts.

With a loan, you borrow the money to make the purchase from a bank or other finance house and the car is yours. You then have to pay back the loan and any accrued interest over the agreed period. There is no such thing as specific car loan and people usually take out a personal loan for the purpose of funding the purchase of a car.

The difference with a hire purchase agreement,which has traditionally been used by businesses but are becoming more popular with individuals, is that the car remains the property of the lender until a final payment is made. If you are the sort of person that likes to change your car regularly, then a personal contract plan - whereby the deposits and repayments are set to ensure the value of the car will be worth more at the end of the plan than the final payment - may be the best option for you, according to motoring website Autofinder.ie.

Under the terms of a personal contract plan, the deposit required is low, but the monthly repayments are relatively high.

Seeing as maintenance is covered, such an agreement may be beneficial to someone who uses their car regularly for business. Finally, a lease purchase agreement allows you to choose the level of your monthly payments and pay the remaining balance off at the end of the agreed period.

Whatever option you choose, the most important thing to remember is that you aren't obliged to buy your motor finance from the dealer who sells you the car. The dealer earns commission by selling a car finance package to you, so you should shop around before you sign up.

While contract and lease purchase finance arrangements usually come directly from the dealer which will have its own agreements with a series of finance houses, car loans can be sourced directly from a variety of different providers. The internet is often a good place to start to get an idea of what's out there and many institutions will even accept and approve applications over the internet.

However, financing your car through the dealer is often the most convenient option. "It's a one-stop shop, where you can choose your car and your loan all in one go," says Erik Byrne, brand manager for finance and insurance at Belgard Motor Centre in Tallaght, Dublin.

While some dealers may have access to special rates from the manufacturer, they usually offer a selection of loans from the main banks. Dealers liaise with financing specialists at the banks on a regular basis and in some cases may have the ability to fast track your application. According to Byrne, providing you have a good credit history, your application can be approved in about an hour.

However, be wary of offers such as: "if you sign up now you can drive the car away today", as these will often end up costing you more in the long run. You should also be aware of any special arrangements such as set-up fees or early penalties which may kick in if you repay the loan before or after the end of the term.

Watch out for very low-rate offers that are often advertised in dealerships, but only apply to short-term loans and could involve a hefty fee at the end of the loan's term.

Before signing up for any sort of financing deal, whether through a dealership or directly with a bank, you should ensure you know what you're getting yourself into. "People need to be aware that they must be able to meet their monthly repayments," says Bryan Smyth, business manager at Peugeot's Westland Motor group in Liffey Valley.

"A lot of people don't realise that by missing payments, they are doing themselves damage in the long run."

Smyth advises that you put down as much money as you can in advance to reduce your monthly repayments.

He also highlights the importance of ensuring that the value of the car you are buying is relative to the loan and that it is going to hold its value.

While the same loan deals are usually available for both new and used cars, the rates may be slightly less preferential for older vehicles. According to Smyth, there isn't a huge difference between the banks' offerings at the moment, although this may change at the beginning of next year as demand for car financing increases.

"There is no harm in arranging your financing now and then buying your car in January," he says, adding that you may even get a better deal. If you are looking for your first financing arrangement, then it's a good idea to apply now as the banks are less busy, and so are more likely to approve your application, he says.

If you decide to arrange a bank loan yourself, then you may get a better deal if you already have your life savings stashed away at that particular institution.

Loans can also be obtained from credit unions and these are generally lower than financing from other sources, though you must join the union to receive such a deal. For anyone struggling with a poor credit rating, there are specialist finance companies who will provide the resources to fund your purchase.

Interest rates tend to be higher than with a bank or credit union due to the increased risk.

You should also consider and be wary of payment protection plans. While important to some people, they can also be an unnecessary expense.

Whatever you do, don't rush in. Read the small print before you sign and ensure you know what it's costing you in the long run and you can afford the monthly payments comfortably.