Is PCP a good way to finance a car?

Firefly

Registered User
Messages
3,269
http://www.independent.ie/business/...f-popular-pcp-car-finance-deals-35957898.html

Official Ireland has finally woken up to the fact that PCP car financing deals could be about to explode and leave a mess

PCPs make new cars, in particular, affordable. However, if the car's value falls below the agreed amount at the start of the deal, then the equity will disappear. You could end up with no deposit for your next car. In such an instance you can walk away from the deal, but you will have nothing to put towards your next motor, and no car.


I see most people buying the car outright rather than "going again" as the penny will drop for many and walking away with nothing haven driven a new car for the last 3 years will be too much to swallow. Credit Unions and banks will make a few bob.
 

24601

Registered User
Messages
316
http://www.independent.ie/life/moto...eller-as-newcar-sales-dip-again-35989297.html

Car sales are continuing to fall year-on-year here so it would appear that notwithstanding the potential risks inherent in the product that 2nd hand car values should sustain at levels well in excess of the GMFV for most cars in the next 2-3 year window. The glut of cars in the UK may have an impact but unless there's a change to VRT that shouldn't massively impact the Irish market - for most people it's still not worth the hassle.

According to this article:
"Some dealers are reporting that as many as 70 per cent of their new car sales are based on PCP." I can't find accurate stats on this but if it's a case that only "some" are reporting 70% of sales via PCP, it's likely that the average is much below this. I wouldn't be worried about the Irish market just yet, but it's definitely something to be watched closely. Government needs to assign supervisory responsibilities to the Central Bank too as regardless of the macro risks, these are nearly always being mis-sold from a consumer protection point of view!
 

Delboy

Registered User
Messages
1,608
The Consumer Watchdog was on Morning Ireland earlier and is asking Politicians to take a look at PCPs as she has some concerns.

1/3 of all new car purchases are now done with PCP's and they were worth €800m in 2016 (up 65% on 2015) in what is largely an unregulated area. The average PCP is worth €25,000.
While they may suit some consumers, she has worries about the balloon payments and customers who either want to hand back the car and walk away or does that seek to buy it outright.

It's also in today's papers
https://www.independent.ie/business...-firms-offering-pcp-car-finance-36678432.html
 

Delboy

Registered User
Messages
1,608
Mr Donohoe replied that the Central Bank's latest data available for the total car finance market in Ireland - which includes both Irish resident banks and non-banks - is to the end of September 2019.

"At that time, there were 76,153 PCP loans outstanding representing a total outstanding stock of almost €1.457bn," he said.

19.1k per contract/vehicle outstanding
 

Delboy

Registered User
Messages
1,608
I took out a PCP last year myself, something I never ever though I'd do. I had the cash for the car but the Manufacturer were giving me €1.5k cash back on a 0% loan. I couldn't say no.
 

Newbie88

Registered User
Messages
5
Are PCP deals potentially a better way to finance a new hybrid car, if there's such big changes in hybrid and electric vehicles technology in the coming years and the PCP deal provides a guaranteed value does this provide a bit of safety on a car that might depreciate faster...?
 

Leo

Moderator
Messages
12,625
Are PCP deals potentially a better way to finance a new hybrid car, if there's such big changes in hybrid and electric vehicles technology in the coming years and the PCP deal provides a guaranteed value does this provide a bit of safety on a car that might depreciate faster...?
A low or zero interest PCP deal is better than conventional finance with a higher interest rate.

The guaranteed final value does offer protection against massive depreciation, but those values are usually weighted in favour of the dealership. In most cases, the retail value of the car will be higher (perhaps significantly so) than the guaranteed value.
 

jpd

Registered User
Messages
2,433
and I would re-read the contract. I would not be surprised to find that there is clause hidden away to allow them to change the guaranteed value in certain circumstances
 

Leo

Moderator
Messages
12,625
and I would re-read the contract. I would not be surprised to find that there is clause hidden away to allow them to change the guaranteed value in certain circumstances
Only if you exceed the agreed mileage or there is damage.
 

Gordon Gekko

Registered User
Messages
5,369
Isn’t the market value at the time usually far higher?

e.g. my sister did one of these. The car was €50,000. She paid €15,000, then about €500 a month for 36 months, and then the outstanding €17,000 at the end. The Guaranteed Minimum Value was circa €17k. But the car was worth around €34k at that time. Which kind of makes sense so you’ve €17k of ‘equity’ in the car to roll into the next deal.

The trick is to just pay it off. The dealers are quite surprised apparently.
 

Leo

Moderator
Messages
12,625
Isn’t the market value at the time usually far higher?

e.g. my sister did one of these. The car was €50,000. She paid €15,000, then about €500 a month for 36 months, and then the outstanding €17,000 at the end. The Guaranteed Minimum Value was circa €17k. But the car was worth around €34k at that time. Which kind of makes sense so you’ve €17k of ‘equity’ in the car to roll into the next deal.

Yeah, in most cases and if you pay a large deposit, then you're almost guaranteed it will be significantly higher.

In my experience, they actively discouraged me from paying a higher deposit as I'd have to come up with a similar deposit after the 3 years to trade up to a new model at the same monthly rate. They really want to condition you to that monthly amount so you hand them back a car in good condition and move on to a new one every 3 years.
 

Gordon Gekko

Registered User
Messages
5,369
Yeah, in most cases and if you pay a large deposit, then you're almost guaranteed it will be significantly higher.

In my experience, they actively discouraged me from paying a higher deposit as I'd have to come up with a similar deposit after the 3 years to trade up to a new model at the same monthly rate. They really want to condition you to that monthly amount so you hand them back a car in good condition and move on to a new one every 3 years.
I’ve heard that too. And I don’t really understand it to be honest. I’d have thought that if you pay a high deposit now, it means you’ve more equity in the car down the line, and therefore need a smaller deposit because it’s made up of the extra equity you have. I know a decent number of people who have gone down the PCP route and it’s made a lot of sense for them. People with share options or lump sums coming to them. But they’re going to just pay it off.
 

Coldwarrior

Registered User
Messages
360
I’ve heard that too. And I don’t really understand it to be honest. I’d have thought that if you pay a high deposit now, it means you’ve more equity in the car down the line, and therefore need a smaller deposit because it’s made up of the extra equity you have. I know a decent number of people who have gone down the PCP route and it’s made a lot of sense for them. People with share options or lump sums coming to them. But they’re going to just pay it off.
With a high deposit the GMV is still the same but the monthly repayment is lower, so you've the same equity at the end, but to maintain the same monthly repayment on the next car you'd likely need to top up the equity to a level similar to your original deposit.
 

Banemore

Registered User
Messages
10
What happens if your car is badly damaged in a accident, we say 8k worth of damage and the insurance company say repair the car and won't write it off as often happens. What will the value of your car be then????. What happens if for some reason you have to do more mileage and its well over the limit.????. I would love to see a survey on this pcp finance. Good luck with buying your car but think it over.
 

Leo

Moderator
Messages
12,625
I’ve heard that too. And I don’t really understand it to be honest. I’d have thought that if you pay a high deposit now, it means you’ve more equity in the car down the line, and therefore need a smaller deposit because it’s made up of the extra equity you have. I know a decent number of people who have gone down the PCP route and it’s made a lot of sense for them. People with share options or lump sums coming to them. But they’re going to just pay it off.
For the purchaser who wants to pay off the final value and walk away, having more equity makes perfect sense.

However, the dealer doesn't want you with more equity as most people realising they have significantly more equity then the final value will choose to buy the car outright. The dealer wants you with a car that's worth a little more than the min value so that you'll happily hand that back to them and take out a new PCP deal on a new model. That's the dealer's dream, lots of people on PCP deals who come back every 3 years to that same dealership and drives off with another new car.
 

Leo

Moderator
Messages
12,625
What happens if your car is badly damaged in a accident, we say 8k worth of damage and the insurance company say repair the car and won't write it off as often happens. What will the value of your car be then????. What happens if for some reason you have to do more mileage and its well over the limit.????. I would love to see a survey on this pcp finance. Good luck with buying your car but think it over.

Then the dealer would be entitled to lower the value of the car below the final value. In that case, you accept that valuation and pay a little extra for your new car, or you pay off the final value to purchase the existing car outright.

PCP has been in the market here for many years with the level of activity significantly rising in 2014, so there have been hundreds of thousands of such deals done over the years with no coverage that I've ever seen of consumers feeling hard done by in relation to alterations in the final value.
 
Top