Putting the shine back on new-car purchases
The long-suffering motor industry has come up with a new payment plan in an effort to allow customers to buy new cars without feeling the pinch, writes Geraldine Herbert
Despite a fall in the number of cars sold in the first six months, the car industry is responding with some tempting new finance offers to encourage buyers back into the showrooms.
Suzanne Sheridan of the Society of the Irish Motor Industry (SIMI) believes that the lack of credit is not likely to be an issue for anyone wanting to buy a new car: "The price of new cars has come down over the last few years and while the market remains weak, various finance offers make a new car more attainable for motorists now. There has been a large increase in the number of manufacturer banks coming on board which offer customers very competitive finance deals."
These days few people actually buy a car with their own cash. With a myriad of options available from bank loans, leasing and finance from the dealership it is increasingly difficult for car buyers to work out who is offering the best deal.
The newest option available to prospective car buyers is a Personal Contract Purchase (PCP) – but what is a PCP and how does it differ from more traditional forms of finance?
Borrowing money from a bank, building society or credit union gives you eventual ownership of a car. The best way to compare loans is on APR – the annual percentage rate, as this allows you work out how much a loan will cost you over its lifetime.
Hire purchase is the simplest form of finance outside of a personal loan. With HP, you pay a deposit (often 10 per cent) and then pay the rest in monthly instalments over an agreed period. After the last payment you own the car.
PCPs are a more affordable way to get into a new car. The contract is typically structured so you pay a deposit and monthly instalments over a fixed term. However, unlike HP or a bank loan the payments are typically lower and at the end of the agreement you have the choice of whether to make that final payment or not.
A PCP comes with a guaranteed future value for the car and this is treated as the car's final payment so you know exactly what it will be worth at the end of the agreement. This final value depends on the predicted annual mileage of the driver so you can adjust the agreed amount to suit your needs.
At the end you can pay the final payment and own the car. You can also part exchange the car and use the excess or equity in the car to fund the next purchase. Many people use the equity in the car to act as a deposit for a new PCP deal and get a new car via this method every few years. So, for example, if the final payment is €9,400, but the car is actually worth €10,600 you have €1,200 in equity. This can be then used as a deposit towards a new car. Finally you can simply return the keys at the end of the payment plan with no future obligation.
So how much does it actually cost? For a Ford Focus Edge 1.6Tdci 95PS five door priced at €22,525 on a 36 month deal with a 30 per cent deposit or trade in of €7,000 you can expect to pay €257.87 per month for three years. The final payment is €8,902.
Nissan has just introduced its new finance package Nissan Go. Under this scheme a similarly priced car to the Ford Focus, the Nissan Qashqai worth €23,745 with a deposit of €8,107 over 36 months would mean a monthly payment of €249.00. The agreed future value is €9,498.
Some companies have special deals. Citroen offers the C4 HDI 90 connected with a retail price of €20,695 and a deposit of €6,209 for a monthly payment of €269. This payment also includes three year's servicing. Also the customer will not need another deposit for the same type of car in three years making it a very attractive offer.
PCPs have also proved a popular option for BMW customers, and according to Brian Merrigan, director of sales and marketing, BMW Financial Services have an acceptance rate of over 84 per cent of applications so far in 2013.
"There is perhaps a perception that buying a new BMW can be expensive, or indeed that the cost of borrowing the money to drive one is beyond reach of many people" says Merrigan. "The truth is that you can drive a new BMW, practically all of our models, for a lower monthly payment than many less prestigious brands."
Customer could drive away in a BMW 316i ES for a monthly payment of €349. This is based on a deposit of €8,736 and a final payment of €16,769.
For families the advantage of a PCP is clear, they can avail of a new car every three to four years at a monthly payment they are comfortable with. In particular they benefit from all the new safety features that are not routinely found in older cars.
In the current economic climate, a PCP certainly allows a small budget to stretch but there are a number of points to consider when opting for one.
One is the mileage, the average Irish motorists does in the region of 18,000km a year so keep this in mind when agreeing the mileage. If you exceed the agreed mileage, when you return the vehicle you will be charged for it so make sure the amount you agree is reasonable.
Also consider carefully how much you can afford monthly. Deposits range from 10 per cent to 30 per cent. Opting for the lowest deposit means a higher monthly outlay but at the end of the agreement if you choose the same arrangement again the smaller deposit may make the transaction easier.
Before you go near a dealership find out as much as you can about the deals available.
Consider whether these include servicing or come with other benefits. You should also consider arrangement fees and any early exit penalties.