Monday 26 September 2016

Put the foot down and pick up a PCP plan

Don't beg the bank when buying a car, writes Sinead Ryan

Published 10/01/2016 | 02:30

We've turned a corner… and we're doing it in a shiny new car, it seems. The upswing in the economy meant that new registrations peaked at 124,945 by the end of 2015, a 29.77pc increase over the previous year.

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Compare that to just 60,000 new registrations in recession-hit 2009.

As the sought after 161's now come to market, many covet the smell of new leather, the clean carpeting and the zero kilometres on the clock, and are prepared to do anything to get their hands on one.

For most, this involves a loan, as few of us have the ready cash to buy a new motor.

Car finance has exploded in popularity.

Plate snobbery, letting the handbrake off austerity and the cost of maintaining an older motor make it enticing to take one of the offers from car manufacturers.

Add in low, or even zero interest rates, and it can tip your decision over the line.

There's no need to beg the bank manager, either. Car financing is now easily done directly through manufacturers (although it's still a bank loan either with an Irish or foreign bank).

These Personal Contract Plans (PCP) differ from the old Hire Purchase offerings in the sense that you are truly leasing, or renting the car.

You will never own it until the final payment. Even then, you'll be enticed by switching to a newer, better model and the entire thing rolls over for another three years.

With HP you will 'finally' make all the payments and with a traditional bank or credit union loan, you own the car from the outset - even if you slip up on repayments, the bank can't take the car as collateral.

For that, naturally, you pay a higher interest rate - for personal loans, anything from 7pc-14pc per annum.

So, when a buyer passes a shiny glass window with even shinier cars inside boasting 5pc APR or less, what's going to stop them?

Switching to a PCP plan to buy can be a great idea, as long as you're aware of the restrictions:

l should you miss payments (because you lose your job, say), the bank can, and will, take the car off you;

l in advance, the contract gives you a Guaranteed Minimum Future Value (GMFV). This is the amount the garage expects the car to be worth after the three years. If you choose to buy it outright, this is what you pay then. If you 'roll over' the loan, this is your next down payment;

l there may be a kilometre and 'fair use' policy. It's your responsibility to keep up servicing, repairs etc and not drive it over a maximum distance per year (this is usually around 15,000km-20,000km);

l you will need a hefty deposit - usually 30pc-50pc, although this can be by trade-in. The remainder of the payments are spread out over around 36 months.

l you may be charged 'arrangement fees', typically €50-€150.

Irish Independent

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