Electric vehicles<\/a> enjoy the lowest motor tax band at just \u20ac120 per year, rising to more than \u20ac2,000 for more polluting vehicles. Buyers of new electric cars can get a Government grant of up to \u20ac3,500.<\/p>\n\u201cWe meet people who have borrowed for a car and could meet the monthly repayments initially, but didn\u2019t factor in the running costs, which can increase year on year,\u201d says Cronin.<\/p>\n
Loss of income, illness, getting married or having a baby can affect your ability to meet the loan repayments, he says.<\/p>\n
Never borrow more than you can comfortably afford to repay, only buy from a reputable car dealer and shop around for insurance as costs can vary widely across the market, he says. <\/p>\n
For some, a car is about getting from A to B, and they don\u2019t give a hoot about its brand or age. Others love cars and will be happy to spend their money on one, potentially spending less in other areas, says Cian Callaghan, director of private clients at Metis Ireland.<\/p>\n
\u201cA good rule of thumb is that you don\u2019t want to be spending more than 15 per cent of your take-home pay on a car, including the running costs,\u201d says Callaghan.<\/p>\n
\u201cThat\u2019s not going to apply to everyone, but where the cost of your car is dictating your lifestyle in other areas, if you can\u2019t afford a holiday, to save or to put money into your pension, then I would say your car is too big for your wallet.\u201d<\/p>\n
Personal Contract Plan <\/p>\n
Hire purchase agreement and a personal contract plan (PCP) are other popular ways to finance a car. <\/p>\n
Take a current hire purchase offer on a 2023 Land Rover Discovery, for example. Pay for this car in cash and it will cost about \u20ac47,000. Don\u2019t have the money upfront? With a hire purchase deal you could be behind the wheel by the weekend. <\/p>\n
Simply pay a cash deposit of \u20ac4,700 upfront, and then repayments of about \u20ac900 over 60 months and it\u2019s yours. <\/p>\n
The interest rate you will pay on this specific hire purchase deal is a whopping 9.35 per cent \u2013 so after your final repayment in 2031, you\u2019ll have paid \u20ac10,990 more for the car than a cash buyer. <\/p>\n
A PCP is a specific type of hire purchase loan offered by car dealerships. <\/p>\n
It splits the price of the car into what can look like affordable chunks; an initial deposit, monthly payments, but then a larger final \u201cballoon\u201d payment at the end of the loan period if you want to own the car outright. <\/p>\n
This balloon payment essentially postpones a chunk of the cost until the end of the loan period.<\/p>\n
The monthly repayment, which includes interest, is typically lower than a personal loan or a standard hire purchase agreement, and this can make it seem like an affordable way of financing a car.<\/p>\n
You\u2019ll need to budget ahead for the balloon payment. Until you make this payment, you don\u2019t own the car. <\/p>\n
Take for example a brand new Volkswagen Tiguan with a price tag of \u20ac50,275 from one particular dealership. To buy this with a PCP, you\u2019ll need a deposit of \u20ac15,400, and then monthly repayments of \u20ac379 over 36 months. The interest rate is 3.9 per cent.<\/p>\n
While \u20ac379 a month can seem affordable for a brand-new car, after 36 months of repayments, you still won\u2019t own it \u2013 to keep the car, you\u2019ll have to make a final lump sum balloon payment of \u20ac24,575. <\/p>\n
PCPs can create an illusion of affordability. <\/p>\n
\u201cUltimately, a PCP is a way of helping people to get a car they can\u2019t afford,\u201d says Callaghan. \u201cI would say it is to be avoided at all costs.\u201d<\/p>\n
\u201cYou can have this illusion that you can afford a particular car \u2013 \u2018I can afford the repayments, so therefore I should do it\u2019 \u2013 but you don\u2019t own the car, you are paying interest on it and you have this looming balloon payment at the end.\u201d<\/p>\n
All the risk is with you too \u2013 PCPs can come with special caveats around mileage and repairs. <\/p>\n
For some PCP borrowers, eventually owning the car is never the aim. Before the balloon payment is due, they simply give the car back to the dealer and sign up to a new PCP on another new car. <\/p>\n
Rolling from one PCP to the next can be akin to kicking the can down the road. <\/p>\n
If you\u2019re not careful, this type of car finance can become a debt trap, says Callaghan. It can lead to a cycle of three-year PCPs where you never actually own your car.<\/p>\n
\u201cIt\u2019s just perpetual repayments you are making for the rest of your life, at sometimes around 7 per cent interest. It\u2019s the car company persuading you to buy something you can\u2019t really afford,\u201d he says.<\/p>\n
Saving aggressively can help you escape from the expensive cycle of PCPs \u2013 so the next time it comes to changing your car, you can afford to pay cash, or at least take out a smaller bank loan each time. <\/p>\n
Opportunity cost<\/p>\n
If you don\u2019t have an overall financial plan, it can be easy to feel like you can afford a more expensive car, says Callaghan. <\/p>\n
\u201cIf you have what seems like surplus disposable income, you will find ways of spending it, instead of thinking long term,\u201d says Callaghan.<\/p>\n
It\u2019s important to understand the opportunity cost of higher car repayments on your overall financial wellbeing. <\/p>\n
\u201cIf you use that money better, save it or invest it, maybe you could retire a year or two earlier,\u201d says Callaghan. <\/p>\n
\u201cBut that\u2019s a values-based decision. Someone might not want to retire earlier, but they do want to drive a nice car, and there is nothing wrong with that.\u201d <\/p>\n
Still, some debt is smarter than other debt.<\/p>\n
There\u2019s a big difference between spending \u20ac500 a month on car finance, where the lender is earning interest from you and the asset is depreciating in value, or instead investing that amount, or putting it into your pension, where you are the one earning a dividend from your money. <\/p>\n
\u201cThe only real debt you want is low-interest debt, like a mortgage where you are buying an appreciating asset that is going up in value,\u201d says Callaghan.<\/p>\n
\u201cBut if you are making meaningful pension contributions \u2013 and I would say 5 per cent and above is a good start \u2013 if you are saving money on a monthly basis and you are able to meet your car repayments, then it\u2019s not a big deal,\u201d he says.<\/p>\n
Ideally, you would pay for a car you can afford from savings. <\/p>\n
Almost half (45 per cent) of buyers of new or second-hand cars used savings to pay for it, according to a consumer survey commissioned by BPFI in 2022. <\/p>\n
About one in five new car buyers used hire purchase or personal contract plans to purchase their car in 2022, according to the survey.<\/p>\n
Some 40 per cent of second-hand car buyers used credit union or bank loans. Some 33 per cent of new car buyers did so.<\/p>\n
However you intend to pay for the car, just never go to a car showroom without having some numbers in your head, says Callaghan. <\/p>\n
\u201cWhen you are negotiating in a dealership, the endorphins are flowing on both sides. You see this big shiny thing you want and the person selling it is seeing the commission. Everyone kind of wants to get the deal done,\u201d he says. <\/p>\n
\u201cSure you can afford an extra \u20ac200 a month on a repayment, but when you realise how much you are paying over five years, maybe you can\u2019t afford it.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The car you drive says a lot about you, or so advertisers would have you believe. But what…\n","protected":false},"author":2,"featured_media":297163,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[73],"tags":[962,79,31867,18,19,3912,17,55418,66798,12094],"class_list":{"0":"post-297162","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-banking-and-payments-federation-ireland","9":"tag-business","10":"tag-dacia","11":"tag-eire","12":"tag-ie","13":"tag-insurance","14":"tag-ireland","15":"tag-kia","16":"tag-mabs-money-advice-and-budgeting-service","17":"tag-money-matters"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@ie\/115937343522523826","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/297162","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=297162"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/297162\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/297163"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=297162"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=297162"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=297162"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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