There are generally three types of car financing methods, but the most popular are hire purchase and personal contract purchase. However, the latter seems to be much more affordable than the former because you have to pay down interest every month and then a large balloon payment at the end of the contract. More than one- third of people in Ireland have been trapped in a car finance deal that they cannot afford at all.

More than a quarter of them say that they regret their decision of taking out a deal as they are trapped. It seems easier to keep up with monthly payments throughout the contract term because you are to pay down only interest, but when it comes to paying down the full and final balloon payment, people fall short of money and fail to own the car. As a result, they end up paying much more than the market value of the car without owning it.

Whether you are buying a new car or used car, you have to be very careful about the deal you are choosing. You must shop around and take out a deal that suits best your budget. Ensure that you understand both types of deals: hire purchase and personal contract purchase before making a decision. No matter which kind of deal you choose, try to be wary of hidden traps that are as follows:

Depreciation

Car is a depreciating asset, and that makes the deal more expensive. If you are using car finance in Ireland, you will naturally pay more than the car's market value. Since the car is a depreciating asset, the market value will quickly plummet down. In fact, as you get it out of the showroom, you find a 30% drop in the value of the car.

This is why you will see a significant gap between what you are to pay down and what the market value of the car is. Further, if your car is stolen, your insurance company will pay out the market value of the car, and you will pay down the difference yourself.

Free insurance deals

Some people have reported that they take out a deal because some dealers offer free insurance deals. It sounds very affordable, but they do not realize that they use it as a bait to attract users. Younger drivers often choose deals with free insurance because it can be costly to pay for the insurance cost.

If you are being offered such type of deals, you should closely examine them. You cannot get anything free. Therefore, you will likely pay it down in the form of monthly repayments. You should go through the contract carefully and ask the dealer if you come up with any suspicious terms. Be careful about fees and other charges that they often not tell but mention in the contract. You do your own calculations and compare the deal, so you choose the most affordable one.

Penalties

When you finance your car on a personal contract purchase, you will likely end up potential penalties that can make it immensely more expensive.

• Penalties when you exceed the mileage

As per the contract, you will have to stick to the mileage agreed upon at the outset. It means if you exceed the given mileage, you will end up paying more in the form of the penalty. The cost may vary from dealer to dealer.

Note that additional journey can suck your wallet at once. You should try not to cross the set mileage limit, or if you suspect that it can happen, you should choose a contract that offers extra mileage. In the beginning, paying for it can at least prevent you from spending a lot of money later.

• Car accident or damage

Under personal contract purchase, you are allowed to pay down the balloon payment and get the title of the car or pay it back to the dealer without paying anything. This is why the contract can allow for everyday wear and tear only.

If your car is banged up, you will have to pay the penalty. You must keep the vehicle in good condition because otherwise, you will pay much more in penalties. It is always advisable that you get the idea of it at the outset of the contact.

Takeaway

Choosing a car finance deal that suits your budget is not an easy job. You should shop around, compare deals and think them over.

Do not choose a deal that does not suit your budget. Many people are facing difficulty in keeping up with repayments because they did not bother much about the deal at the outset. You should try to consider cheaper alternatives to finance your car like 24-hour loans in Ireland.