EARLIER this month Bank of Ireland brought out Motorloan, a new motor finance offer, supported by a substantial promotional package that includes one year free motor assistance, free payment protection insurance, a chance to win a free holiday and a free holiday voucher worth £50.
At first sight, the Bank of Ireland offer looks attractive enough with reasonable sounding repayments on a typical APR of 11.5 per cent. (See table.) But borrowers need to keep their priorities clear: would the offer of a couple of boxes of washing powder influence the washing machine you bought? Then why should you allow the chance of winning a holiday or free breakdown service influence the sort of car loan you take out.
Family Money contacted the main backs to find out what interest rates and `extras' they were offering on a £5,000 car loan. In such a competitive market, where new cars are flying out the showrooms, it came as no surprise to see the wide diversity of rates. As the table shows, it pays to shop around and to seriously consider whether the bells and whistles added to some loans is worth the higher repayment. Fixed-rate loans will cost slightly more as will the addition of payment protection insurance. (Bank of Ireland's rate includes PPP). Keep in mind that you will incur penalties if you try to break a fixed-rate contract early.
Furthermore not all repayment methods are the same. Our example is a straightforward personal loan, but all the banks (as well as the finance banks) will arrange different leases and lease/purchases. Such deals can be very suitable for people who regularly replace their car for a new model and wish to keep repayments low. But make sure you take the time to examine your contract carefully: a lower monthly repayment may seem enticing but is probably due to the fact that the lender is adding on an extra month's repayment at the end of the borrowing period.
Aside from the lending rates, what is each of the main banks offering by way of motor loan extras?
ACC Bank: Determined to keep interest rates as low as possible this bank rewards all its existing bank customers with a £100 motorloan voucher each year to put towards a new car purchase if they so wish. Average APR on a £5,000 loan is 9.68 per cent.
AIB: Accelerator, AIB's motorloan package requires personal loan borrowers who are not trading in an old car to pay three months repayments up front. The monthly repayment for a three-year loan is then calculated as three plus 33 payments, or if you don't mind paying an extra month's payment at the end, three plus 34 payments, three plus 45 (or 3 plus 46) payments for a four-year loan and three plus 57 (or 3 plus 58) payments for a five-year loan. The effect of paying the extra month is to slightly reduce the individual monthly payment. For this you do receive one year's free AA membership, a free GSM mobile phone and an £80 voucher that can be spent on any product within the AA services range. Average APR 11.4 per cent.
Bank of Ireland: Motorloan offers a one-year free membership of a motor assistance service, automatic payment protection, the chance to win a £1,000 holiday (20 to be given out each month between December and April 1997) and a holiday voucher worth £50. A Motorloan Approval Certificate is also given out. Average APR 11.5 per cent.
Irish Permanent: Irish Permanent says it will be "pitching new rates" in January and declined to participate in our mini-survey. When Family money asked if this meant lending rates would be coming down (or going up) a company spokesperson preferred to repeat that it would be "pitched differently". Irish Permanent offers the widest range of motor finance arrangements, leaning heavily at leasing deals where repayments appear lower than conventional loans. Currently, personal motor loans are "pitched" at interest rates of 12.4 per cent, but include a year's free RAC membership.
National Irish Bank: No frills here, just a straightforward loan with competitive interest rates for both variable and fixed contracts. Average APR for a £5,000 variable loan is 9.8 per cent.
TSB Bank: A straightforward loan. No extras. Average APR 10.9 per cent.
Ulster Bank: Ulster Bank charges at the higher end of the interest rate scale (though it must be said that there is not much between any of the banks' rates) and also slaps on a 1 per cent "arrangement fee". On a £5,000 loan this amounts to £50.00. Unlike Bank of Ireland and AIB, who at least throw in a few goodies to sweeten the repayment pill, Ulster keeps all the bells and whistles for themselves. Average APR for a £5,000 loan is 12.15 per cent, though this does not include the impact of the arrangement fee.