Is PCP a good way to finance a car?

willyfones

Registered User
Messages
39
Certainly a credit bubble in the PCP market, and yes it definitely will burst. They have a fairly slick operation in the car garages, take it for a test drive,, a quick bit of paperwork and it's yours. The alarm bells ring of course when you see the Central Bank NOT including this in the upcoming CCR credit rules for lending. I know someone who is looking to borrow to pay down the balloon payment,,, so they paid a deposit on a car (they don't own - the garage does) It depreciates 10% a year,, then they borrow down the line to finally own the car... makes no sense.
 

demoivre

Registered User
Messages
2,719
Here is some information from the Competition and Consumer Protection Commission regarding PCPs. They explain that at the end of the agreement they are three choices, two of which are straightforward, and the third being:

  • Put the car down as the deposit on another car and enter into another PCP agreement. It is important to be aware that the deposit you put down for the first car will not be given back to you if you use the car as a deposit for a new PCP agreement. The equity you have built up in your monthly repayments and the difference of the GMFV is what you put towards the new car. All you have to put towards the new deposit is whatever equity you built up from the first PCP. This equity may be less than the deposit required for the new PCP, so be aware that you might have to top the deposit up. This could amount to a couple of thousand euro.
( Highlight by me )

Maybe it's just me but I have no idea what this actually means.
 

Sunny

Registered User
Messages
4,174
Certainly a credit bubble in the PCP market, and yes it definitely will burst. They have a fairly slick operation in the car garages, take it for a test drive,, a quick bit of paperwork and it's yours. The alarm bells ring of course when you see the Central Bank NOT including this in the upcoming CCR credit rules for lending. I know someone who is looking to borrow to pay down the balloon payment,,, so they paid a deposit on a car (they don't own - the garage does) It depreciates 10% a year,, then they borrow down the line to finally own the car... makes no sense.

How does that make no sense? Someone wants to buy new car. They buy on PCP for three years. At the end, they don't want to get another new car and they don't want to hand it back. So they either enter a hire purchase arrangement with the garage or they take a loan to make a balloon payment. So what??? Some people take huge loans to do work on their homes that will never see the same value added in the value of the house. Some people get loans to go on holiday. Some people get loans to get bigger boobs. Some people take a loan to buy a car. Who cares? If PCP does crash, do you really care? Do you think the Irish Taxpayer is going to bail out Toyota or Volkswagen like it did the banks. It's like saying the credit card market will crash because people are throwing money on their cards for silly stuff. It's unsecured lending. There is risks to both the lender and the borrower.

Not saying PCP is for everyone but its not a scam and if grown up adults decide to enter into these agreements, then good luck to them.
 

Leo

Moderator
Messages
12,625
Certainly a credit bubble in the PCP market, and yes it definitely will burst.

It's hardly comparable to a bubble when at the end of the period the vast majority will have a car worth more than the final payment. New car sales figures from 2016 are well down on the peak, and sales have fallen again in the first quarter of 2017, again, not very bubble-like.

They have a fairly slick operation in the car garages, take it for a test drive,, a quick bit of paperwork and it's yours.

Nothing new there, car dealers didn't get their reputation making it difficult for people to overstretch when buying a car.

so they paid a deposit on a car (they don't own - the garage does) It depreciates 10% a year,, then they borrow down the line to finally own the car... makes no sense.

Have you looked at the calculations earlier in the thread? This can actually be one of the cheapest ways of financing a new car purchase. You should actually tell your friend to price the same finance via the dealer, as in some cases, they will be able to finance the balloon payment at better terms than the banks or CUs.
 

Leo

Moderator
Messages
12,625
...Maybe it's just me but I have no idea what this actually means.

It is unnecessarily complicated. I believe the point they are trying to make is that at the end of the PCP deal period, provided the car is in good condition, it is likely to be worth more than the final value amount. In some cases, more popular model/spec cars that lose less value over the period may be worth significantly more.

It is the difference between the final value and the actual worth of the car that can be used as a deposit toward a new model.
 

Firefly

Registered User
Messages
3,269
Another warning from the Indo this morning:

http://www.independent.ie/business/...d-put-lenders-on-a-road-to-ruin-35876521.html

Most people know the 3 options at the end of the deal at this stage. Here's how I think it will play out. The dealer / finance will be on the hook initially as the GFMV will be higher than the car is worth. However this will only crystalise if the buyer decides to hand back the car or buy the car outright. If the buyer "goes again" they will be offered a lot less than the GFMV if they trade in for a new car. That new car will also have a much lower GFMV or the monthly payments will increase by a significant amount. If the buyer decides enough is enough there are 2 options. (A) Hand back the keys, in which case the buyer is left with nothing after driving a new car for the past 3 years. Some come down. (B) (presumably) take out a loan for the balloon payment. If I traded in a car / provided a desposit and made repayments for 3 years I think it would sicken my craw if I then had to take out a new loan for the car outside my door.

I really think this whole thing will end in tears.
 

demoivre

Registered User
Messages
2,719
Most people know the 3 options at the end of the deal at this stage.

They do and when the CPCC's best explanation for option 3, which is to use the car to roll in to a new PCP, is this:

The equity you have built up in your monthly repayments and the difference of the GMFV is what you put towards the new car. All you have to put towards the new deposit is whatever equity you built up from the first PCP

I despair and I still have no idea what it means.

If the buyer "goes again" they will be offered a lot less than the GFMV if they trade in for a new car

The irony !!! When is a " Guarantee" not a guarantee? Only with a PCP. I have personally never come across a financial product that is so shady and I wouldn't touch it with a barge pole. And of course the product is peddled by car salesmen. Enough said.
 

Firefly

Registered User
Messages
3,269
They do and when the CPCC's best explanation for option 3, which is to use the car to roll in to a new PCP, is this:

The equity you have built up in your monthly repayments and the difference of the GMFV is what you put towards the new car. All you have to put towards the new deposit is whatever equity you built up from the first PCP

I despair and I still have no idea what it means.

It's phenomenally obtuse

The irony !!! When is a " Guarantee" not a guarantee? Only with a PCP. I have personally never come across a financial product that is so shady and I wouldn't touch it with a barge pole. And of course the product is peddled by car salesmen. Enough said.

Agree, in fact I would guarantee it's a house of cards!
 

Leo

Moderator
Messages
12,625
Another warning from the Indo this morning

Looks like more alarmist stuff from the Indo in their race to the bottom. Some their assertions are at odds with the CSO stats on new registrations including the numbers on UK imports.


The dealer / finance will be on the hook initially as the GFMV will be higher than the car is worth.

Unless the car is in a really bad way or is just a really unpopular model/ spec, the GFMV will be lower than the market value of the car. The car would have to lose over 60% of its value over the 3 years. Take a look at second hand prices for the more popular models here and you'll see they are retaining significantly more than that.

If I traded in a car / provided a desposit and made repayments for 3 years I think it would sicken my craw if I then had to take out a new loan for the car outside my door.

I don't get this. So you buy a car valued at say €30k, pay a deposit of €6k, make ~€15k repayments over 3 years and you somehow feel bad that you have to pay the balance?
 
Last edited:

Leo

Moderator
Messages
12,625
I have personally never come across a financial product that is so shady and I wouldn't touch it with a barge pole.

A huge number of the early PCP deals will already have completed, I would have expected to read lots of complaints from those purchasers if the predictions of doom were to be believed. PCP was available in the UK a couple of years before they made their way over here, and still remain popular with ~80% of new cars being bought on PCP.

Anyone reading this take up the early PCP deals here in 2013/ 2014?
 

Firefly

Registered User
Messages
3,269
Unless the car is in a really bad way or is just a really unpopular model/ spec, the GFMV will be lower than the market value of the car. The car would have to lose over 60% of its value over the 3 years. Take a look at second hand prices for the more popular models here and you'll see they are retaining significantly more than that.
Hi Leo,

I have a feeling the garages are keeping the prices of 2nd hand cars artificially high. If you check out what you can bring the same (or better) car in from the UK for the prices seem way out of whack to their true market value.


I don't get this. So you buy a car valued at say €30k, pay a deposit of €6k, make ~€15k repayments over 3 years and you somehow feel bad that you have to pay the balance?

I think a lot of people don't really think about the balloon payment too much when taking out a deal like this. If/when they need to pay for this I'm sure it would leave a sour taste in the mouths of a lot of people.
 

Leo

Moderator
Messages
12,625
I have a feeling the garages are keeping the prices of 2nd hand cars artificially high. If you check out what you can bring the same (or better) car in from the UK for the prices seem way out of whack to their true market value.

There has always been an element of that, new cars are a lot cheaper in the UK, the 10% devaluation of Sterling has just widened the gap and led to a jump in imports. As an example, taking the best selling car in Ireland, The Hyundai Tuscon at the same Premium spec level is €33,245 here versus £21,088 (€24k) in the UK.

New car sales numbers are still low, leading to a shortage in the second hand market. We've only just gotten back towards the new car sales numbers of 20 years ago (2016 sales just surpassed 1998, and were ~20% down on 1999), and in the meantime the population has risen by ~29%. 2017 new car sales have dropped on last year.

I think a lot of people don't really think about the balloon payment too much when taking out a deal like this. If/when they need to pay for this I'm sure it would leave a sour taste in the mouths of a lot of people.

There's definitely a large element of that at play, but car finance has always been easy to get so there has always been a cohort of people who are willing to believe they're getting a great deal regardless of the small print. From the calculations here, even for those who have to finance the balloon payment, they're still likely to be saving money over the traditional finance options. That should ease the sour taste a little.
 

Leo

Moderator
Messages
12,625
I wonder, i.e. speculate!, has the penny dropped with PCPs and people are not "going again" with those 141 cars???

I would love to know, so if anyone here reading has a personal story...

I've worked out the numbers on a few options for different brands, and looked at what the 3-year-old examples of the same models are going for. In all cases, unless the dealers are offering significant discounts on the new car, the obvious choice is to hold on to the car and pay-off or finance the final payment.
 

Firefly

Registered User
Messages
3,269
I've worked out the numbers on a few options for different brands, and looked at what the 3-year-old examples of the same models are going for. In all cases, unless the dealers are offering significant discounts on the new car, the obvious choice is to hold on to the car and pay-off or finance the final payment.

I agree and would think a significant number of people are doing that. Given the gap between what you could bring the same car in from the UK for that must be a royal pain!
 

Learner2015

Registered User
Messages
193
The GMFV are set at the predicted auction value of the car in three years time i.e. many thousands of euros under the predicted retail value a dealer can sell at. Yes it's a prediction but so is a lot of talk on this thread about various outcomes of PCPs.

Comparing an imported car to one coming off PCP and the price gap between each closing is not as straightforward. What would you prefer to do, write a cheque for €20k and buy the car you have owned since day one or write a higher cheque to be the 2nd owner on a car from another country that you really can't fully verify the history on? I know what I'd rather do...

An imported car of comparable age / mileage etc will cost more than the GMFV of a
PCP car coming off lease. An imported car will generally cost less than an Irish one retailed from dealer.

This is generally how the trade works, of course there ar exceptions there always is.

Are PCPs the devils work, I don't think so. It's actually a very simple product in my opinion.
 
Last edited:

RedOnion

can edit posts
Messages
5,858
I've followed this thread with interest since long before I joined AAM, and until now I've avoided becoming embroiled in the discussion. In the past my work involved me deeply in leasing & HP and it's been interesting to follow this thread. Apologies if it's a bit of a rant, but just my 2 cent!

As for PCP being a simple product - well I don't fully understand it in all cases, and I think a thread that extends to over 350 posts shows how unclear the product is. Do I think it's the devil's work? No, but I have a lot of issues with it, and how it's marketed.

Firstly the product is specifically designed to sell more cars. It was designed by the car industry (ford), and not by banks, to help people to purchase cars they couldn't otherwise afford. One of my biggest issues with PCP (and even HP) is the regulation around them. Even the regulatory bodies in this country seem to be confused about who exactly is responsible for regulating PCP/HP to the extent that there is actually a loophole in the new CCR legislation that means Car finance deals won't be initially reported as it requires a legislative change (car finance houses don't all fall under the definition of 'Money Lender'). On top of that they are not within the scope of the Consumer Protection Code. This means when it comes to advertising, the dealer can advertise such things as 'own from €x per month'. All the advertising you see around cars are focused on the monthly repayment amount, not the total cost, to let people know how 'affordable' the car is. I won't even get started on the fact that the people selling these products don't have to have any financial advisory training, or that it's being marketed in some cases specifically to people with bad credit history.

My first experience of PCP in a retail context was a few years ago when my neighbour exchanged a 10 year old car for a brand new Hyundai Tucson. When I said I was surprised he had bought new, his response was that it was cheaper than buying a 2 year old model! The reality is that most customers don't think about the balloon payment, or what they're going to do in 3 years when the deal is up. There was talk earlier in the thread around customers being left with a sour taste if they have to borrow money at the end of 3 years to own the car, but I think the biggest problem will be that they have to dig deep into their pockets to 'go again' and get new car as they won't have much equity above the GMFV; in an effort to keep the monthly repayments as low as possible, I think some brands are pushing the limits of the GMFV which will leave customers with very little equity at the end of the term.

The other option that seems to be forgotten, but is still there, is good old fashioned HP. I've seen the calculations earlier in this thread, but they need to be updated to reflect the real deals available in the market. Comparing a 0% PCP to 11% HP is wrong - 11% HP typically is the preserve of the 2nd hand market (or someone who doesn't want to do HP!). Taking a look at either Peugeot or Hyundai for example, it might actually work out cheaper using HP vs PCP; particularly is you knew you wanted to own the car outright, and in some cases the monthly repayments are actually lower (assuming 5 year HP vs 3 year PCP and then financing the MFV). Hyundai offer the same APR on both options, and Peugeot even offer 0% HP on one specific model. (I don't have time at the moment to do out a full table of the options).

Which gets me on to another point. There is no such thing as 0% finance! I work in banking, and the concept doesn't exist. The cost of administration of the loan itself it high, without factoring in cost of finance and bad debts. If a dealer is offering 0% finance, you're probably forgoing something else. I know one brand of car I was looking at (not that I'd buy new), and I was being offered over 10% off the list price as a cash buyer (or financing elsewhere), or a much smaller discount if I was going for 0% PCP.

In terms of a 'credit bubble' have these things collapsed before? Well yes. PCP has been around for a while in the UK, and finance houses ended up nursing very heavy losses when the 2nd hand market collapsed in 2009. Similarly here with HP, but not because of the GMFV. Under legislation, once a customer has made 50% of the repayments due under HP deals (and I understand PCP), they can hand the keys back and walk way. A lot of customer here & in the UK triggered that clause in 2009 / 2010, and the banks were left with cars they couldn't sell (I know of someone who made a lot of money storing high end cars that the auctions couldn't even shift in 2010).

Because of the losses they made, banks shied away from offering HP on 2nd hand cars since the crash (which was very common up to 2008 so long as the car would be less than 8 years old at the end of the term), so it's very interesting to see PCP for 2nd hand cars arriving from specialist lenders just when the first PCP deals are maturing. Again, it's purpose is to help garages shift stock just when they're starting to get a lot of it back in - without it it would be cheaper to buy new so there'd be no market for their trade ins.

Rant over!
 

Learner2015

Registered User
Messages
193
Red onion I think ur post was fair enough not a rant at all!

I suppose it just I understand it, the advantages and disadvantages so that's probably why I'm calling it simple.

It's like everything I suppose, some love it, some hate it and some will regret it.

The more opinions on these sorts of threads are good so keep em coming!
 

RedOnion

can edit posts
Messages
5,858
I suppose it just I understand it, the advantages and disadvantages so that's probably why I'm calling it simple.

Absolutely, and sorry it wasn't a direct dig at your post. The product isn't complicated, but for some reason when people explain it they make it more complicated, or get it completely wrong. I'm including financial journalists in that. If I was to take an example of explanations from dealers and national newspapers, I'm not sure it would explain properly to me what I'm getting into.
 
Top