Friday 23 February 2018

PCPs are popular, but don't overlook other ways of getting a car. Here's some advice

Advice: Shop around and compare deals when financing the purchase of a car
Advice: Shop around and compare deals when financing the purchase of a car

When it comes to financing the purchase of a car, buyers have been opting for personal contract plans (PCPs) in their droves.

But financial experts advise that anyone buying a new or second-hard car should not forget that there are plenty of other options they should consider out there.

PCPs are popular because the interest rates are very low, and monthly repayments are manageable.

But a key aspect of a PCP is the need for the car to retain its agreed value at the end of the three or five-year deal.

A surge in cheap imports from the UK, due to sterling's Brexit-induced collapse, means many PCP deals may bomb out, some experts fear.

Also, the sheer volume of PCP deals being done at the moment means there will be huge numbers of cars on the market when it is time to take out a new deal.

PCPs are a modern twist on the old hire purchase agreement.

You pay a deposit, typically between 10pc and 30pc of the value of the car. You then make monthly payments, usually 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.

The option that most people take is to exchange the car for a new model. You finance this with a new PCP deal.


The key thing to remember about a PCP is that you do not own the car unless you buy it outright at the end of the agreed term.

The small print - the bits to remember and watch out for - include the following:

* High mileage could mean a lower minimum guaranteed value.

* A lot of wear and tear may also mean you do not get the full value of the car agreed at the start of the deal.

* If you have a crash and the cost of the repairs is greater than 66pc of the original list price then you may also not get the minimum value you were hoping for.

* Because a lot of the repayments are deferred, the interest costs may be low initially, but the total ends up being high over the full length of the agreement.

m Dealers and car company banks are able to offer lower interests rates on the deals for the first three to five years because they retain ownership of the vehicle, lowering their risk.

Credit unions

Credit unions were traditionally where people went to for car finance. And they have plenty of money available, as most of them are under-lent.

Their rates are extremely competitive, despite each one setting its own loans rates.

Car loan rates are often lower than other rates within the credit union, with some charging as little as 5pc.

The big advantage with funding through a credit union is that you own the vehicle, rather than leasing it, or effectively renting it as you do through a PCP deal.

Hire purchase

Car buyers don't always realise that the car finance they are offered in salesrooms is actually a hire purchase agreement. This was traditionally a forecourt favourite. The key difference between a hire purchase (HP) agreement and a personal loan is that by buying a car with a personal loan you own the car as soon as you hand over your money.

With a hire purchase agreement, you do not own the car until you pay off every last cent on the HP deal.

Personal loans

Banks are back trying to tempt us to take out car loans.

So let's look at a loan for €10,000 to be paid back over three years.

AIB offers interest rates of 9pc, with monthly repayments of €316. The total cost of the credit works out at €1,309, according to the Competition and Consumer Protection Commission.

Permanent TSB claims you can get approval in minutes so long as have a current account with the bank with your salary going into it.

As ever it always pays to shop around and compare deals.

Indo Motoring

Promoted Links

Life Newsletter

Our digest of the week's juiciest lifestyle titbits.

Promoted Links

Also in Life