# Credit Union Car Loan



## Dace69 (17 Apr 2019)

Any advantages with car loans with the Credit Union?

Was going to do this as I am a longtime customer but I believe my saving will be tied up for the duration of the loan. I'd like the option of being able to repay the loan quicker if suits me and not sure I'd have that flexibility with bank, etc. 

TIA.


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## Elnino (18 Apr 2019)

ADVANTAGES
Early repayment without penalty
You own the car from day one unlike with PCP/HP/Lease etc
Free life assurance

DISADVANTAGES
Your shares are tied up as you stated. 

However you should be able to negotiate a collateral figure that is lower than your shares. If the credit union wants your business badly enough they will do that for you and you won't be tying up all your shares.


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## Dace69 (18 Apr 2019)

Thanks Elnino. Good point on the collateral figure.


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## evil_g (18 Apr 2019)

How do interest rates compare to the main banks?


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## 24601 (21 Apr 2019)

Elnino said:


> ADVANTAGES
> DISADVANTAGES
> Your shares are tied up as you stated.
> 
> However you should be able to negotiate a collateral figure that is lower than your shares. If the credit union wants your business badly enough they will do that for you and you won't be tying up all your shares.



This isn't necessarily true. Most credit unions have moved away from the requirement to tie up significant amount of savings when borrowing. Some have a nominal minimum amount which equals the minimum share balance needed to qualify for their death benefit cover. 

A credit union car loan is the same as a bank car loan with few differences. You'd be able to repay both quicker if you wished unless you borrow from a bank at a fixed interest rate, although I'm not sure any bank currently has a fixed rate car loan product.


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## Hurling Fan (22 Apr 2019)

With our Credit Union, they give an annual interest rebate of 25% which makes the credit union loan cheaper than a bank loan.  I know this interest rebate is agreed every year at the AGM but it has been happening for a good few years now.

You can also overpay for a period - so you accumulate a payment credit - and then take a break and not pay anything off your loan and only pay the interest.  Don't think you can do this with a bank.

All things being equal, its also good to support your local credit union.


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## newirishman (22 Apr 2019)

I’ve got a 0% car loan last year, which can be repaid early without penalty, via the dealership I bought the car from. (Used car).
The car is technically not mine until I have fully repaid the loan, but for all practical purposes this makes no difference.
Not sure that I would recommend anyone to get a loan from a bank or credit union to buy a car. 
There’s quite a few cheaper options available even without going down the pcp route.

Different story of course if you want to guy privately or from some generic used car dealership.


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## galway_blow_in (22 Apr 2019)

newirishman said:


> I’ve got a 0% car loan last year, which can be repaid early without penalty, via the dealership I bought the car from. (Used car).
> The car is technically not mine until I have fully repaid the loan, but for all practical purposes this makes no difference.
> Not sure that I would recommend anyone to get a loan from a bank or credit union to buy a car.
> There’s quite a few cheaper options available even without going down the pcp route.
> ...



Never heard of  0% car finance on a second hand car ?


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## 24601 (23 Apr 2019)

newirishman said:


> I’ve got a 0% car loan last year, which can be repaid early without penalty, via the dealership I bought the car from. (Used car).
> The car is technically not mine until I have fully repaid the loan, but for all practical purposes this makes no difference.
> Not sure that I would recommend anyone to get a loan from a bank or credit union to buy a car.
> There’s quite a few cheaper options available even without going down the pcp route.
> ...



You didn't get a "0% car loan", you got 0% finance on a PCP/HP type contract, which, despite what you suggest, is significantly different from a practical point of view.


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## newirishman (24 Apr 2019)

24601 said:


> You didn't get a "0% car loan", you got 0% finance on a PCP/HP type contract, which, despite what you suggest, is significantly different from a practical point of view.



I'll check the contract paperwork later, but as far as I remember there wasn't any significant differences.
I guess depends on what you think is significant.


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## newirishman (25 Apr 2019)

24601 said:


> You didn't get a "0% car loan", you got 0% finance on a PCP/HP type contract, which, despite what you suggest, is significantly different from a practical point of view.



So checked the paperwork- it is indeed a Hire purchase contract, with 0% interest.
Going through the contract again, I cannot see a difference to a car loan from a practical point of view.
I don’t own the car until the end of the contract, but the registration cert is in my name, and if I want to sell the car on, all I need is to pay off whatever is left.
Not sure what the “significant” difference would be in your opinion.


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## lledlledlled (25 Apr 2019)

newirishman said:


> So checked the paperwork- it is indeed a Hire purchase contract, with 0% interest.
> Going through the contract again, I cannot see a difference to a car loan from a practical point of view.
> I don’t own the car until the end of the contract, but the registration cert is in my name, and if I want to sell the car on, all I need is to pay off whatever is left.
> Not sure what the “significant” difference would be in your opinion.



I hope this works out for you but I'd be concerned that you've entered into a HP or PCP contract without realising.  
There's another thread here somewhere where Brendan breaks down the pros cons of each form of car finance but it goes something along the lines of you being better off with a high interest loan for a car you can afford than a 0% loan for a car you can't afford.  
I message I got from it was that people are lured into buying a car they can't afford because there's cheap finance available. Hope you aren't in this cohort.


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## newirishman (26 Apr 2019)

lledlledlled said:


> I hope this works out for you but I'd be concerned that you've entered into a HP or PCP contract without realising.
> There's another thread here somewhere where Brendan breaks down the pros cons of each form of car finance but it goes something along the lines of you being better off with a high interest loan for a car you can afford than a 0% loan for a car you can't afford.
> I message I got from it was that people are lured into buying a car they can't afford because there's cheap finance available. Hope you aren't in this cohort.



Well that’s beside the point now isn’t it. If you can’t afford it, it doesn’t matter what type of finance you get. 
I went into the dealership with the cash in my pocket, more or less. And went out of the dealership with 2/3 of the cash still in my pocket, and a 0% finance for that amount. That fact that I couldn’t  remember on top of my head one year later what exact type of contract it was only makes it clear that from a practical point of view it made no difference.

My recommendation still stands: I would check with the dealership what type of finance is available, before I’d contact a bank (or credit union) for a car loan. A 0% HP contract is definitely better than personal loan with interest >0% - and a quick search reveals interest rates in excess of 6% for a car loan across the board.
How one would recommend a 6+% personal credit over a 0% finance is not clear to me.


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## Andrew Murphy (26 Apr 2019)

newirishman said:


> How one would recommend a 6+% personal credit over a 0% finance is not clear to me.



I understand why you may think this, but you are overlooking the effects of price negotiation.

Buyers using the funds secured via a loan are in a stronger position to negotiate a cash discount on the car than buyers signing up to a 0% finance deal. This is simply because the cost of a car under a 0% scheme also needs to factor in the cost of financing the deal which is not disclosed to the borrower (0% finance is rarely a free lunch). Whether it is possible to secure a cash discount is a different matter altogether and will depend to a large degree on the negotiating ability of the buyer and the supplier's willingness to do a deal.

Getting back to your point. If you are able to secure a cash discount greater than the total interest due on the loan at 6+%, then 0% is not necessarily better. Rather than be seduced by headline percentage rates you should instead calculate the total cost of each financing alternative to determine the cheapest.


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## newirishman (26 Apr 2019)

Andrew Murphy said:


> I understand why you may think this, but you are overlooking the effects of price negotiation.
> 
> Buyers using the funds secured via a loan are in a stronger position to negotiate a cash discount on the car than buyers signing up to a 0% finance deal. This is simply because the cost of a car under a 0% scheme also needs to factor in the cost of financing the deal which is not disclosed to the borrower (0% finance is rarely a free lunch). Whether it is possible to secure a cash discount is a different matter altogether and will depend to a large degree on the negotiating ability of the buyer and the supplier's willingness to do a deal.
> 
> Getting back to your point. If you are able to secure a cash discount greater than the total interest due on the loan at 6+%, then 0% is not necessarily better. Rather than be seduced by headline percentage rates you should instead calculate the total cost of each financing alternative to determine the cheapest.



You are aware that the dealership doesn’t do the finance, so they don’t care? They want to sell the car, for whatever price makes it a good deal to them.
I have yet to see actual proof that you get a significant better price by offering to pay cash than getting a finance deal. 

But going back to the OP: there is no benefit getting finance from your credit union over a bank, unless you pay less interest.


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## Andrew Murphy (26 Apr 2019)

newirishman said:


> But going back to the OP: there is no benefit getting finance from your credit union over a bank, unless you pay less interest.



Agreed, if comparing like for like loans.

However I do not agree with your statement...



newirishman said:


> You are aware that the dealership doesn’t do the finance, so they don’t care?



Actually they do care. A 0% finance scheme is simply a marketing gimmick that disguises the commercial reality of the financing transaction. No finance company lends at 0%. There is an interest cost associated with the finance and that cost is offset against the dealership's gross margin - the borrower is unaware of this as it is undisclosed. In a nutshell the dealership invoices the finance company for the cost of the car, net of the cost of finance.

To illustrate take the example of a car costing €9,000 repayable by 36 monthly instalments of €250 (0% finance to the borrower). Assuming the finance company requires a return of 3% per annum they simply discount the 36 x €250 at 3% p.a. to arrive at the amount they will pay the dealership. In this example the dealership receives €8,597 (say €8,600), so the difference between this amount and the document price of the car is the suppliers contribution to the finance cost i.e. €400. This cost is offset against the dealers margin, which is why they do or should care.

Getting back to the point I was trying to make above re price negotiation; if someone secured a loan at 3% *and* a cash discount of €400, that person would be no worst off than someone taking the 0% finance deal at the full price.


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## 24601 (27 Apr 2019)

newirishman said:


> So checked the paperwork- it is indeed a Hire purchase contract, with 0% interest.
> Going through the contract again, I cannot see a difference to a car loan from a practical point of view.
> I don’t own the car until the end of the contract, but the registration cert is in my name, and if I want to sell the car on, all I need is to pay off whatever is left.
> Not sure what the “significant” difference would be in your opinion.



Not owning the car is a significant difference. You've also highlighted a significant difference arising from this fact. If you want to sell the car on you have to pay off the remaining balance, which is obviously not the case if you buy the car with funds from a CU/Bank loan. 

Also, many main dealerships do the finance themselves or via an arrangement whereby they get commission, so yes, they are quite interested in you taking the car on PCP from them. Even at 0% they get kickbacks and it increases the likelihood of you changing your car every 2 to 3 years exponentially higher, but most importantly, you're far more likely to buy from the same dealership due to how the deals are structured. Also, as Andrew mentioned, cars sold on finance are generally sold at the RRP less the imaginary scrappage so the margin is much higher.


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## twofor1 (27 Apr 2019)

24601 said:


> cars sold on finance are generally sold at the RRP ......



Very true in my experience.

I was offered 0% finance on my last new car, but it was on the recommended retail price. I declined, paid by bank draft and got a €2,750 discount off the recommended retail price.

In my case 0% finance would have cost €2,750.


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## NoRegretsCoyote (27 Apr 2019)

Some of it comes down to liquidity preference.

I bought my last car for €12k and had the cash to hand.

I still got a bank loan for €12k over a year for two reasons. First, I thought I might have needed the funds and didn't want them tied up in a car. Second, if you are in a real squeeze, bank finance allows you to just sell the car. While with PCP it is a bit more complicated.

The interest cost was basically insurance, but I was happy to pay it.


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## EmmDee (13 May 2019)

Andrew Murphy said:


> Agreed, if comparing like for like loans.
> 
> However I do not agree with your statement...
> 
> ...



The dealers get a cut of the financing - in some case it can be more profitable than the sale of the car.


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## RedOnion (13 May 2019)

EmmDee said:


> The dealers get a cut of the financing - in some case it can be more profitable than the sale of the car.


Not really any more, but it definitely used to be very profitable.
This used to be the case when banks were providing the finance; you'll still see it a bit in the finance arranged through independent dealers. But with the brands it's either white labelled at very low margin, or the car brand has set up a bank itself. It's an enabler to sell cars, with rather than commission driven.


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## 24601 (14 May 2019)

RedOnion said:


> Not really any more, but it definitely used to be very profitable.
> This used to be the case when banks were providing the finance; you'll still see it a bit in the finance arranged through independent dealers. But with the brands it's either white labelled at very low margin, or the car brand has set up a bank itself. It's an enabler to sell cars, with rather than commission driven.



Yep, the idea is to change the habits of people from changing their cars every c.5 - 7 years to every c.2 - 4 years.


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## peemac (6 Jun 2019)

As others have said, finance deals are built into the ticket price - whether it's a car or a suite of furniture.

Finance companies are looking for 6% apr according to a dealer next door to me. Whereas for furniture and white goods they are looking for 10%-12% (flexifi) 

The dealer / retailer can make up any rate they like.

0% car finance on 12 monthly payments will cost 3.3% of ticket price.
0% car fiance on 36 payments will cost 9.5% of ticket price.

So if a garage is offering 3 years 0% finance, haggle for 10% discount if you are paying in full yourself


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## galway_blow_in (7 Jun 2019)

newirishman said:


> You are aware that the dealership doesn’t do the finance, so they don’t care? They want to sell the car, for whatever price makes it a good deal to them.
> I have yet to see actual proof that you get a significant better price by offering to pay cash than getting a finance deal.
> 
> But going back to the OP: there is no benefit getting finance from your credit union over a bank, unless you pay less interest.



You don't get a better deal by offering cash, the only time you pay more for a car is if you are trading your old car

Finance is as intrinsic a  part of the motor trade today as the engine in the car itself, the likes of VAG has it's own bank!


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## galway_blow_in (7 Jun 2019)

peemac said:


> As others have said, finance deals are built into the ticket price - whether it's a car or a suite of furniture.
> 
> Finance companies are looking for 6% apr according to a dealer next door to me. Whereas for furniture and white goods they are looking for 10%-12% (flexifi)
> 
> ...



You won't buy any cheaper by offering cash, they have a floor price either way

The comparison with kitchen appliances is bogus


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## galway_blow_in (7 Jun 2019)

twofor1 said:


> Very true in my experience.
> 
> I was offered 0% finance on my last new car, but it was on the recommended retail price. I declined, paid by bank draft and got a €2,750 discount off the recommended retail price.
> 
> In my case 0% finance would have cost €2,750.



Which is nothing on your average 30 k new car


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## EmmDee (7 Jun 2019)

galway_blow_in said:


> Which is nothing on your average 30 k new car



Well it's 9.17% to be exact - the only question is going to be what the cash flow is worth to each person. One person might have cash available and 9% is a pretty decent discount. Someone else might value the utility of spreading out the payments.

But it's not nothing


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## galway_blow_in (7 Jun 2019)

EmmDee said:


> Well it's 9.17% to be exact - the only question is going to be what the cash flow is worth to each person. One person might have cash available and 9% is a pretty decent discount. Someone else might value the utility of spreading out the payments.
> 
> But it's not nothing



Over three years, it's not much, very few have 30k in cash to spend on a single item of expenditure


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## peemac (7 Jun 2019)

galway_blow_in said:


> You won't buy any cheaper by offering cash, they have a floor price either way
> 
> The comparison with kitchen appliances is bogus


If finance is costing them 3.5% in order to offer 0% finance, then that 3.5% is up for grabs.

The comparison to white goods was just to show that finance houses work on different rates depending on the product.

Car financing is at the lower cost level

Edit - most credit unions seem to be about 8% apr, so the car dealer deals are probably the best value.


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## galway_blow_in (7 Jun 2019)

F


peemac said:


> If finance is costing them 3.5% in order to offer 0% finance, then that 3.5% is up for grabs.
> 
> The comparison to white goods was just to show that finance houses work on different rates depending on the product.
> 
> Car financing is at the lower cost level



Finance isn't costing volkswagen Bank 3.5 % and besides, you're hardly going to pay cash just to save a few percent


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