Major savings on hire purchase for those who shop around

A typical consumer buying a car could save more than €1,000 over the life of a hire-purchase agreement if they shopped around at the start, the financial regulator, Ifsra has found.

Ifsra conducted a study into 11 of the main companies offering hire purchase and found that costs can vary dramatically.

Hire purchase agreements are typically concluded in car purchases. They involve the hiring of goods for a set period of time with a view to owning them eventually. Repayments with a fixed interest rate are made monthly, while fees are also paid at the start and end of the agreement.

In two hypothetical situations, Ifsra found that the most expensive provider of such arrangements was Ford Credit, which offers hire purchase through some car dealers. The cheapest operator was Permanent TSB.

The regulator takes the example of Deirdre, who is buying a car for €22,000. She trades in her old car for €3,000 and thus needs finance of €19,000. She wants to pay this over five years in 60 monthly instalments.

Over the life of such an agreement, hire purchase with Ford Credit would cost €26,560. With Permanent TSB, it would cost €25,408. AIB would charge €25,819 for the same hire agreement, while it would cost €26,217 at Bank of Ireland.

In another example, John is buying a 1999 Toyota Starlet for €8,500. He needs to finance the total cost of the car and wants to pay for it in monthly instalments over five years.

In this case, a hire agreement would carry a total cost of €9,856 with Ford Credit. At the other end of the table, it would cost €9,536 with Permanent TSB. The second-most expensive provider in this example was Bank of Ireland, followed by Friends First.

Ifsra's consumer director, Mary O'Dea, advised consumers to use the regulator's survey to compare the cost of hire purchase loans. She also recommended comparing the cost of hire purchase to the cost of a simple bank loan when buying a car.

One key difference is that ownership only passes to the consumer at the end of the hire-purchase agreement, while they would become the owner at the start of a bank loan period.

"Always separate the good decision from the credit decision and take time to explore the cost of the various car finance packages available," Ms O'Dea said.

Ifsra advises that the best way to compare hire purchase deals is to look at the annual percentage rate (APR) or the "hire purchase price". Providers are not obliged to offer information on APR because they offer hire rather than loan facilities.

The hire purchase price will, however, clarify how much the agreement will cost over its lifetime, including the deposit, the sum borrowed, interest and fees.

Full details are available on www.itsyourmoney.ie