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PCP: Be sure on two key factors in the equation


When buying a car, 'get down and dirty with the figures'

When buying a car, 'get down and dirty with the figures'

When buying a car, 'get down and dirty with the figures'

Personal Contract Plans (PCPs) continue to cause confusion among buyers, judging by the level of enquiries.

That is especially the case around a couple of key concepts.

The first is 'future guaranteed minimum value'. This is the amount the car will be valued at after (usually) three years, provided you've met all the undertakings on mileage, wear-and-tear etc. But it is NOT your car or money. You will have to pay that amount to own the car if you wish. It is the amount outstanding on the vehicle. Call it a balloon payment if you like. I repeat, it is NOT your money and you can't use it as a trade-in value against a new car. Some people think you can.

The second one is equity. This is the difference, if any, between what the car is worth on the market and the aforementioned guaranteed minimum value.

So if the car has a €20,000 minimum value and the market shows (you can shop around) it is worth €24,000, you are €4,000 to the good. That is €4,000 worth of equity you can put towards a deposit for your next deal.

The ideal PCP is where you switch to a new deal paying the same amount each month for a new car. It doesn't always work out that way.

I think it is important that you get down and dirty with the facts and figures of doing a PCP a second time round especially.

That's when there seems to be the potential for misunderstanding and disappointment.

Don't forget many people often go into the first PCP deal with a trade-in or deposit/cash up front. Quite often, they can go into the second deal having to find money to top up their deposit. That is when the real world of PCP can hit home with a vengeance if your first deal has not been structured to suit you.

PCPs are an amalgam of balancing acts. If you have a large deposit first time around and your repayments are lower as a result, you could find the second time around, without a big deposit, that you are facing a steep increase in monthly repayments.

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For all that, and in the main, PCPs appear to be going well and the major motoring financiers all report substantial levels of lending and satisfaction. But it's no harm to be sure of what is involved.

Meanwhile, judging by the volume of enquiries received here over the past month, a lot of people are going to change their car in the new year.

But not for a new one. The vast majority are looking at buying a two-to-three-year old.

We reckon that 100,000-plus of them will buy an import.

With just a few shopping days to go, more than 99,000 have already been registered in 2018.

As everything to do with Brexit is up in the air and with sterling's strength in focus, who is to say how many more will be bought in 2019?

Motoring industry sources are almost resigned to another fall in new-car registrations in 2019, with predictions of upwards of 10pc knocked off this year's 125,000, which is down 4.4pc on last year.