Consumers have been warned they face hefty penalties if they want to back out of hire-purchase agreements for cars.
According to the Financial Regulator, many car buyers are unaware of the type of financial agreement they are entering into when buying a car.
Consumer Director Mary O'Dea said: "Some people assume they are signing up for a loan when, in fact, they have entered into a hire-purchase agreement and will not own the car until the final payment.
"Hire purchase agreements are less flexible than most other loans; for example, you may have to pay a penalty to end the agreement early, as you would with a fixed rate loan.
"So if you are offered finance at a garage, look beyond the monthly repayment and find out what sort of agreement it is", Ms O'Dea added.
She pointed out that with a personal loan, you borrow money to buy the car and own the car straight away. With a hire-purchase agreement, a consumer does not own the car until the final payment is made and, therefore, cannot decide to sell it.
She gave the example of a motorists who wants to return his car after 25 months of a hire purchase agreement. But to end the agreement he must pay half the total hire-purchase price.
The hire purchase price is €17,399.50, so the motorist must pay €8,699.75 to end the agreement. As he has only paid €7,378.45, he must pay an additional €1,321.30 to end the agreement.
