Personal Contract Plans or PCP’s are a relatively new concept in Ireland, which allowed people to purchase cars at a relatively more affordable monthly cost that a straight Car Loan or Hire Purchase. However regulators are worried that these PCP’s may be a personal loans time bomb. With rates over the last 3 years have varying from 0% to 3% making new cars more attractive to motorists. In a traditional hire purchase agreement, you pay off the entire value of the car in equal monthly installments. A PCP differs in that you have lower monthly installments that only cover the car’s depreciation, and then a very large final payment at the end.
When you signed on the dotted line several years ago, the end of your PCP finance contract might have seemed like a lifetime away. However, a lot these contracts are coming to maturity around now and it may be time to consider your options again – as you don’t automatically own it.
With a PCP you have three choices when the contract ends;
- make the optional final payment to buy the car,
- return the keys and walk away with nothing left to pay – provided the car is in good condition and below the pre-agreed mileage limit
- or hand it back and get a new one.
One question that may have to be asked is what the 2nd hand Car market is like when your contract matures. Although you will receive a Guaranteed Minimum Value for your car, what happens about a deposit for the next car. Does the trade in value include enough to pay off the final payment and deposit on your new car? The minimum guaranteed value of your car is also based in the condition of the car and if the mileage has exceeded the contracted mileage. Questions still It remains to be seen whether Motor Dealers will see an appetite from Car Buyers for the large number of cars returned under PCP contracts and will that effect the value of the GMV at which they will take them in at. Will it also mean that the PCP Customers will need to borrow for a deposit on their next car or indeed to pay off the GMV if it is necessary to hold on to your Car?
Regulators have been watching the rise of these forms of finance and here the State’s Competition and Consumer Protection Commission is launching a study into the impact of PCPs on consumers and the motor industry. Some Commentators have been warning that the explosion in popularity of PCPs is a ticking time-bomb. There is a danger people are taking on debts they cannot afford – and high levels of imports could collapse car values. With the fall in value of sterling car imports have sky rocketed thus putting more pressure on the GMV’s been offered by Dealerships
Credit Unions have been the losers with the introduction of PCPs and may see motorist return to the safety of community based lenders as the perfect storm of high UK imports and an influx of cars from PCP customers.
Gurranabraher Credit Union have introduced a New Loan Product, “Buy your Car Back” with a rate that compares favourably to ones offered by the PCP Finance companies at the end of your contract, with no hidden fees.