PCP market grew tenfold in six years
PCP car finance has exploded more than tenfold to €1.5bn, since 2012, according to data from the Central Bank. Personal Contract Plans (PCPs) now account for as much as 40pc of car finance deals.
The first comprehensive data on the PCP market in Ireland is included in a so-called Economic Letter, prepared by the Central Bank's Martina Sherman, Tiernan Heffernan and Bryan Cullen and published by the regulator, although not regarded as setting out an official position.
PCPs are a variation of hire-purchase agreements that allow the purchaser to buy a new or relatively new second-hand car with a small deposit and typically 36 monthly repayments. Unlike traditional hire purchase, the repayments don't cover the cost of the car, which can be purchased outright or handed back at the end of the contract.
For many consumers the lower monthly cost makes PCPs attractive.
Central Bank researchers have now compiled data following a survey of all lenders in the market.
PCPs are provided by a mix of traditional banks, the finance arms of car manufacturers and non-bank lenders.
The data shows significant year-on-year growth in the market since 2012, although the market stabilised somewhat last year, the researchers said.
At the end of 2017, Irish households owned 126,249 contracts related to PCP finance, equivalent to €1.5bn of outstanding debt.
That was up from just over 14,000 contracts in 2012. On average, 35,000 PCPs are now taken out every year, compared to 6,000 in 2012.
Notably, from a regulatory perspective, the Central Bank team found that PCPs are the current driver of growth in bank lending to Irish households for non-mortgage consumer lending. They have become the most prevalent source of car finance in the Irish market since April 2016 - accounting for 43pc of car-related bank debt, compared to 25pc at the end of 2014
The data shows the domestic banks are by far the biggest providers of PCP finance to consumers - with just one in nine contract extended by non-bank entities.
The key potential risk to consumers identified by the researchers is negative equity; if second-hand prices drop, for example.
Potential misselling is also raised as an issue for further consideration, with incentives offered by dealerships and banks, affordability and credit checks used for PCPs noted.
The level of exposure in the banking system to the car finance market was also raised.