PCP - good value or an overly complex car 'hire-purchase' deal? Four things you need to know
Following the decision of the State consumer protection body to launch a new study into PCPs, we have the four things you should know about the financial product.
One – What are PCPs?
PCPs are a modern twist on the old hire-purchase agreement.
You pay a deposit, which is typically between 10pc and 30pc of the value of the new car.
You then make monthly payments, which will usually be for three years. At the outset you agree the number of kilometres you are going to clock up over the period of the agreement.
If you keep to this, the car will have a pre-agreed value at the end of the deal, known as the minimum guaranteed value, sometimes called the guaranteed minimum future value (GMFV).
At the end of the three years, you have a number of choices. You can buy the car outright for the guaranteed value agreed at the start. Alternatively, you can hand back the keys and walk away.
Two – Why are they in the news?
Fears that thousands of motorists are taking out finance deals without being aware of the pitfalls have prompted the State consumer protection body to launch a new study.
The consumer protection body said it was aware of issues that some consumers had experienced in relation to PCPs.
"Such issues concern a lack of awareness of certain terms and conditions, uncertainty as to what certain terms and conditions mean at the end of their agreement and questions around the regulatory status of both the credit intermediary selling the product and the lender, with whom the consumer enters into the agreement," it said.
There are also concerns whether the lenders providing PCPs are regulated, and about the regulatory status of car salespeople offering the deals.
Three – What are their benefits?
PCPs have made new cars, in particular, affordable. Many have zero interest rates with low monthly repayments.
Four – What are their risks?
If the value of the car falls below the agreed amount at the start of the deal, then the equity will disappear. You could end up with no deposit at all for your next car.
You can in such an instance walk away from the deal, but you will have nothing out of the PCP to put towards your next motor, and no car.