Q. I am buying a new car this month – we had our 3rd child last year and my current car is too small and old…but we will borrow to fund it. Where is the best place to source this funding. Hoping to borrow c. € 22,000 + over 3 to 4 years I hope. Love the column. Thanks Mike – Mitchelstown Co Cork
A. Congrats on the family Mike so yes you need a safe car. There are 2 ways of buying your car – from your savings or borrow it. If you have to borrow, your 3 choices are 1) Bank loan – generally the highest interest rate. 2) Credit Union – most have competitive rates c. 6.5%. 3) Personal Contract Plan – PCP….the cheapest and available with your local car dealer or car manufacturer. The PCP is the most popular currently and generally cheapest BUT be wary because you can be sucked into a never-ending car loan. How it works say on say a Hyundai costing € 26,245 ..
- 10% up to 30% deposit required upfront ( 30% is € 7,874 )
- A low repayment over 3 years ( € 207.69 per month )
- On maturity of the loan, you have 3 choices with the Guaranteed Minimum Future Value (GMFV) of € 11,810 which represents 45% of the original cost …
- Hand over the car and walk
- Pay the lump sum owing ( € 11,810 ) and have a debt free car
- Buy a new car and continue with the loan repayments for another 3 years… means you have a never-ending loan…
Just remember the car is the worst depreciating asset you can buy but necessary in your case but maybe you don’t need a ‘new’ car… Electric should not be overlooked too. Best wishes.