10 things you still need to understand about PCPs before you buy a new car
Focus on PCPs
Everybody knows that if not for Personal Contract Plans (PCPs) far fewer people would be driving around in their plush new cars.
The PCPs have given people the chance to get back on track after many years in the new-car wilderness.
They have also shifted perceptions - from ownership to 'usership'.
Yet despite their prevalence and apparent inexorable take-up (virtually every car on the market now has a PCP offering) there are lots of misconceptions, unfounded criticisms and well-founded concerns.
There is a lot of competition even at this stage of the year for buyers. Distributors and dealers have sales and market-share targets to meet. So it could be a really good time to have a look.
You have to factor in the reality that 162-reg will yield to 171 so quickly (this year has absolutely flown) and all that. But if the price is right, you'd never know.
One thing has to be absolutely clear, however. You simply have to 'stress-test' your ability to meet repayments from the start.
Don't take on something that is remotely likely to become a troublesome burden after a few months or half way through your (typical) three-year agreement.
With that very much in mind here are 10 things probably worth bringing to your attention or - in some cases - repeating for emphasis:
1. Personal Contract Plans (PCPs) may be hugely popular but you get nothing for nothing. Taking out a PCP basically means you are leasing the car for two-to-three years.
Lots and lots of people are on to us here each week and it is obvious there is a lack of understanding of what is involved.
Make sure you know what you are facing.
2. PCPs are like hire-purchase. Typically they work like this: you have 20pc deposit/trade-in value, you agree mileage, guaranteed minimum future value (GMFV) and monthly repayments. You do not own the car. You can buy it at the end of the term for the GMFV.
Or you can use whatever equity is in it towards a new car and a new deal.
Or you can hand back the keys and walk away.
3. It's the GMV - guaranteed future value - and 'equity' that are causing misconceptions. The GMV is an assurance that the car will be worth a certain amount - given normal wear and tear - after the three years.
4. Equity is NOT the GMFV. Lots of people think it is. Equity is whatever the car is worth, or you can get, over and above the Guaranteed Minimum Value at a particular point in time. Say the car has a GMFV of €10,000. Say the market happens to be strong when you come to renew and you can get €13,000.
Your equity is the GMFV minus the market value - which is €3,000. That's the bit that can go towards your next deposit.
5. It follows from this that it is vital your PCP is structured in such a way that you are not left with a huge gap to bridge when you come to sign up for another car. That is where you have to make sure you are getting a realistic GMFV.
6. The chances of you ever owning a car again diminish with every three-year-renewal. 'Usership' before 'ownership' is very much part of the evolving psyche here now.
7. You will be penalised if you exceed your agreed mileage. It is so much for each kilometre so it can add up quickly.
So if you are covering 30,000km a year, it's not the best plan unless you can drive an especially good deal. Your repayments are likely to be notably higher.
8. It is vital to read the small print. Take your time assessing what is being offered and being absolutely sure you can afford the repayments and can meet all the stipulations.
9. Make sure you check out the real cost of your PCP. Some deals could cost €20 a month more than stated because the initial price quoted in may not include delivery and related charges.
These can run to anything from €600 to €1,000 depending on make and model.
And that could amount to €20 a month more than you had bargained for. It's worth checking.
10. The optimal deposit level appears to be around 20pc-22pc of the Recommended Retail Price.
The reason this figure is important is because it is regarded as crucial for people wishing to get into the next car at much the same monthly repayments.