The huge increase in the cost of gasoline and diesel as a result of the war in Ukraine has colored even more car buyers. Electric cars have become hugely popular, especially where you can find an ESB possible charging point available and free!
Even for business owners, if they were to choose a company car, the first € 50,000 were tax-free from Benefit In Nature, but from 2023 this will change and its complications will apply to another article.
At the same time, John Lowe from MoneyDoctors.ie asks, do you know the difference when you buy a car, whether petrol diesel or electric, between a personal loan, hire purchase and personal contract plan (PCP)?
Confusing to say the least. With a private loan, you own the car from day one, but you have an unsecured loan from a lender who has taken a risk that they will be repaid. For this risk, they charge a substantial interest rate.
Lease purchase agreement
If you have a rental purchase agreement, you only own the car when the last “bullet” payment has been made on the loan. If you want to terminate the agreement before the notice date and keep the car, you generally have to pay the full rental purchase price (the cost of the car plus interest and any other costs).
You can get a little discount on the interest you have to pay if you end the agreement early. However, this does not necessarily apply to personal loans.
With a PCP, there is the normal deposit and the usual loan of 36 months. But the fun begins after the three years because you have a number of choices:
- Keep the car and pay the final payment or finance the payment for another couple of years, no matter how the car becomes yours to keep when the final payment is made. You can do whatever you want with the car now.
- Return the car and make no further payments. This will depend on the condition of the car and service history, if you have taken care of it there should be no problems. If everything is fine with the car, you can just return the keys and leave without paying more, but remember that you will not have a car either because it goes back to the dealer. Your credit rating will not be affected as long as you have made all normal payments.
- Replace the car with a new one. If the car is in good condition, it can be used as a replacement for another who starts the whole agreement again. The good thing is that you will have a new car, the disadvantage is that you come back to a new three-year contract and have to come with the deposit. Maybe your “old” car is sufficient deposit? At this stage, you may be able to upgrade the car to a larger one, but remember that you are entering into a new agreement, so read the fine print again.
With hire purchase, if you have difficulty keeping up with your payments or have already missed payments, contact the bank or finance company as soon as you can. They often agree to change your contract to make it easier for you to make payments.
If you and they agree on this:
- the bank or finance company may be entitled to charge you a restructuring fee,
- the bank or finance company will extend the length of the agreement so that you have to pay extra interest to cover the longer period,
- The installment amount you pay each week or every month may be lower, but it takes longer for you to own the car because the contract has been extended. But this will help your cash flow – remember that income is your main asset.
Even with these extra costs, changing your rental agreement will usually cost you less than ignoring the problem and possibly getting the car repossessed. Changing your contract also means that you can continue to use the car. If you can not afford the refunds, you can terminate a hire purchase agreement at any time. However, you must:
- notify in writing and return the car
- pay half the rental purchase price, minus the sum of your payments so far (including any deposit you paid). This is sometimes called the “half rule”
- pay the cost of any repairs needed if you have not taken reasonable care of the car.
If your car needs repair …
According to a hire purchase agreement, you are obliged to take reasonable care of the car. You can usually count on getting a bill for repair if the car is damaged when you return it. With car repairs, you can consider having a mechanic inspect the car and pay for any necessary repairs before returning the car to the bank or finance company.
You should contact your lender and tell them that you want to terminate the lease agreement according to the “Half Rule”. Once you have paid half the rent purchase price, they must accept this decision.
Make sure that you do NOT sign a voluntary transfer form when you return the car, otherwise you will have to pay back the balance on the rental purchase agreement. If you sign a “voluntary transfer form”, you waive your right to terminate the agreement according to the half rule.
When you have a lease purchase agreement, most lenders send information about the repayments you make to a credit bureau. This information builds up your credit history (or history) and CCR stores information about repayments on your agreement (such as any payments that you have missed or not paid on time) for five years after the termination of the agreement.
You can get a copy of your credit report from CCR for free – it takes 4/5 days. You can not get information about your credit history by phone, as credit reporting companies must keep your information confidential. If you terminate a hire purchase agreement prematurely, return the car and repay what you owe, your credit report will not be affected. The agreement will be displayed as completed.
Now you know – drive carefully!
The opinions expressed here are those of the author and do not represent or reflect the views of RTÉ.
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