The new car market is showing some signs of recovery. According to the MotorCheck Index, new car registrations got off to a strong start in 2011 recording a 41% increase (to 6,296) on the first ten days of 2010 (4,467). This has been aided by the Government Scrappage Scheme, and the willingness of many car companies to match the €1,250, giving consumers value.

Little competition
Part of the problem is that a number of lenders have exited the car finance market, including GE Money, Lombard, Friends First and Bank of Scotland. Permanent TSB and to a lesser extent Bank of Ireland and AIB are the only ones lending at the moment.
Banks’ criteria for approval have become very strict with large upfront payments demanded in most cases. The reluctance of banks to lend has prompted some manufacturers to introduce their own finance arms and offer more competitive rates than the banks.
For example, VW Bank has a rate of 5.9% APR on all new VW models and 6.75% on used cars. For Skodas or Seats, which are owned by VW, the rate is more competitive, at 4.9%.
That’s significantly lower than rates of up around 8% charged by many other finance houses.
However, it is important to point out that these are hire purchase.

Many finance deals are HP deals
Needless to say, if you manage to get loan approval, it’s important to know what type of loan you are signing up to. Many people are finding to their cost that the car-finance deal they signed when they bought their motor is not a loan and is actually a hire-purchase deal.
The distinction is important because when you buy a car with a loan, say from a credit union or a bank, you own your car as soon as you hand over the money and sign the documents. With a hire-purchase agreement you do not actually own the car until the last cent is paid off on the agreement.  This means you cannot sell the car or trade down if you run into difficulties.
According to the National Consumer Agency, car salespeople will try and persuade customers to sign up for a “car finance deal”. In these situations people mistakenly believe they are signing up for a personal loan when in fact they taking on a hire-purchase deal.

Bank loan rates
The best fixed rates for a personal loan of €13,000 paid back over three years is NIB at 10.75%. Customers of Ulster Bank can get a rate of 9.9%, otherwise it offers a rate of 11.9% to non-customers. NIB also offers the cheapest variable rate at 11.47%, followed by Permanent TSB with 12%.

Credit unions
Credit unions can be a much cheaper option than banks for car loans, with some establishments offering rates as low as 6.5%.
Almost a third of all car buyers secure a loan from their credit union, making it one of the most significant sources of motor lending.

Money owed on car
If you are buying a used car, you should check to see if it has any outstanding finance on it.
A recent survey by Motorcheck showed that of 100 cars advertised for sale, 30pc of them turned up positive for finance on the official records of the Irish Credit Bureau. The number of used cars for sale with outstanding finance is rising because sellers who want to clear the finance cannot do so until they sell the car.
This doesn’t mean you cannot proceed with the sale but you need to make a clear, written agreement with the seller that the finance will be cleared with the proceeds of a sale shortly after a sale is agreed.