Here we are looking at your choices for used-car finance in Ireland…
Personal Contract Purchase
Just like new cars, some used-car garages and dealerships now offer finance on second-hand vehicles for buyers to avail of. PCP on a used car works in the same way as it does on new: you pay a proportion of the vehicle’s overall value as a deposit, fathom out how many years you’d like to keep the car for and then finance the depreciation between the point of purchase and the end of the contract. The dealer will offer a Guaranteed Minimum Future Value (GMFV) on the car that sets the depreciation level and then you must keep to the pre-agreed annual mileage stipulations that are part of the PCP deal. At the end of the PCP contract, you can either hand the car back and walk away, at no further cost to yourself, you can pay the GMFV and keep the car as your own, or you can use any equity (GMFV less depreciation, if the car is worth more than the GMFV come the end of the contract) as a down-payment on another PCP deal on another car. This is not massively common on the used market, however.
And, just like PCP, you can HP a used car (in fact, PCP is a form of HP). The difference here is that you pay a deposit and then finance the entire remaining value of the used car in question, plus some interest. These HP deals run across a number of years and offer flexible rates, so you can usually find a monthly figure that’s in your budget.
Bank loan/credit union loan
The former of these two is the most common way, in most people’s minds, of paying for a used car. It’s very simple: you see a car you like that’s up for sale for, let’s say, €8,000. You do not have €8,000 of savings but you are employed and pulling in a monthly wage, and you think you can afford something like €180 per month for the next five years. Therefore, you go and see your bank manager, or – more commonly – you apply for a loan through a bank’s website, and they assess your means/income to see whether they are happy to lend you the €8,000. If they are happy to proceed, they transfer the €8,000 to your bank account and you then use this to buy the second-hand car in question outright. You then, over the course of five years, pay the money back to the bank via monthly instalments of €180; so, in the end, you pay something like €10,800 back instead of the €8,000. These aren’t exact figures, of course, as banks’ interest rates will vary, but you get the idea.
A credit union works in much the same way but you need to be a part of that credit union through a shared bond – typically living or working in the same area as the credit union, or being part of the same association as the credit union. The benefit to these is that they often have lower interest rates than bank loans, although the same process of repayment is required.