There are two major differences for the consumer between a Hire Purchase Agreement and a “Car Loan”. The first concerns your relationship to the asset: in the case of a car loan you receive money from the bank which is often an unsecured loan which you then use to buy a car. The car is yours as soon as you purchase it, but you obviously must repay the loan amount plus interest to the bank. In the case of a Hire Purchase Agreement you are effectively leasing the car monthly. The car is not yours until the last payment is made. At that time title in the car will transfer to you. The bank can repossess the car if you do not keep up the payments.
The second key difference between a car loan and a Hire Purchase Agreement concerns the relationship between the car and a future potential purchaser of the vehicle. In the case of a Car Loan the car does not have a financial interest listed against it, the loan is often unsecured, and the car loan was personal to the intended recipient – so a future purchaser may take title in the car even if the car loan was not paid off in its entirety by the original loan recipient. (In a case like this, where a loan was not paid back in full to the bank the bank would ordinarily look to secure judgment against the loan recipient for the outstanding amount. Obviously the bank would look at the option of seeking an order to repossess the car, but, if the car has already been sold then the bank can seek judgment against another asset).
This is a very different scenario to a Hire Purchase Agreement. In the case of that type of agreement the car belongs to the bank until the original recipient has paid off the last monthly repayment. This means if the car is subsequently sold, with title still vesting in the bank, the future purchaser can lose the car – the bank can simply take it back as it still belongs to them. This is a disasterous scenario for a purchaser – that is why it is so important to do a finance check with Cartell.
Vast Differences in Finance Costs between banks
An article featured in last weekend’s Sunday Independent about costs of finance. Louise McBride, writing about the differing costs of car finance, says the paper uncovered huge differences between different banks against the same amount of capital.
The article states:
The Sunday Independent examined the car finance offered by AIB, Bank of Ireland, Permanent TSB and Ulster Bank as well as the hire purchase deals offered by a few dealers. We found that you’ll usually pay through the nose if buying it with a car loan – the interest rate on car loans can be more than twice that charged on hire purchase.
BORROWING €30,000
Up to €2,829 more expensive at the bank
Let’s say you’re borrowing €30,000 over five years to buy that Land Rover you need for your reckless off-road driving. The most expensive way to borrow this money is through a car loan from Bank of Ireland, according to our survey. A five-year car loan of €30,000 costs €9,047 at Bank of Ireland. Ulster Bank charges €8,114 for its car loan – which made its loan the second most expensive way to raise €30,000, followed by AIB’s car loan, which costs €7,998.
One of the cheapest ways to borrow €30,000 for a set of wheels is through hire purchase with BMW Financial Services. It costs €6,218 to borrow €30,000 under hire purchase with BMW Financial Services – €2,829 less than Bank of Ireland charges for its car loan. AIB and Bank of Ireland also offer hire purchase – and this works out cheaper than the car loans offered by both lenders. It cost €6,490 to borrow €30,000 over five years under AIB’s hire purchase agreement – and €6,750 with Bank of Ireland.
Some dealers work out more expensive than both banks for hire purchase. For example, Windsor Motors charges €7,470 if you’re borrowing €30,000 through hire purchase over five years; while First Citizen Finance charges between €6,881.60 and €7,403 – depending on whether you are buying a new or second-hand car. Neither Permanent TSB nor Ulster Bank offer hire purchase.
BORROWING €10,000
Up to €1,073 more expensive at the bank
Let’s say you’re borrowing €10,000 over five years to buy a Fiat Panda. A car loan from Ulster Bank is the most expensive way to borrow that money, according to our survey. Ulster Bank charges €3,246 for a five-year car loan of €10,000. The second most expensive way is through AIB’s car loan – which costs €3,140 – followed by Bank of Ireland, which charges €3,016 for its car loan. The fourth most expensive way was under Windsor Motors’ hire purchase plan – the dealer charges €2,870 for the finance. One of the cheapest ways to borrow €10,000 for a car is through hire purchase with BMW Financial Services. It costs €2,173 to arrange car finance of €10,000 with them – €1,073 less than it does through an Ulster Bank car loan. The second cheapest route was AIB’s hire purchase – where it costs €2,214 to raise €10,000 over five years – followed by Bank of Ireland’s hire purchase, which costs €2,258.
Later segment of this blog reproduced from Sunday Indo Business