Car finance is an increasingly popular way for Irish motorists to purchase their car and here at Bolands Wexford we have a dedicated finance team whose job is to ensure you get all the information you need to choose the finance option that suits you best.
There are two main types of finance, PCP (Personal Contract Plan Finance) and HP (Hire Purchase Finance).
How does a PCP work?
A PCP is a type of hire purchase contract. You don’t own the car until you have made the final payment. With a PCP, payment is broken down into three parts:
The deposit – the deposit is typically between 10% and 30% of the value of the car, depending on the finance provider. Your deposit can be paid in cash or if you already own a car, you can trade this in for part or all of the deposit, depending on its value.
Monthly repayments – PCP contracts are usually made for terms of at least three to five years. PCPs generally have low monthly repayments, which can make them seem more affordable compared to other forms of finance.
Guaranteed Minimum Future Value (GMFV),a large, final payment, is how much it will cost you to own the car at the end of the contract. It takes into account such things as, the car you are buying, length of the contract, the condition of the car at the end of the contract and your annual mileage. This final payment is set at the beginning of the contract, based on the finance company’s estimate of the future value of the car. If you are entering into another PCP the GMFV is subject to you meeting all the terms and conditions, including any mileage restrictions, you agreed at the start.
When your contract ends:
At the end of the PCP contract, there are a number of options:
Pay the GMFV, to own the car. There may be other fees associated with buying the car for example acceptance fees or completion fees which should be outlined in your PCP contract. You could also refinance the GMFV by taking out a new finance contract as the GMFV can be a large sum of money. This would meant you are entering into another financial contract
Hand the car back. Be aware that if you do decide to hand the car back, while you generally don’t have to pay the dealer anything, you might end up having to pay a penalty if you have not met all the terms and conditions, for example, if you have exceeded any mileage restrictions agreed at the start of the contract or if there is excessive ‘wear and tear’ on the car. You also will no longer have the car.
Enter into another PCP contract to buy a new car. It is important to be aware that the deposit you put down for the first car will not be given back to you. If the market value of the car from your first/previous PCP contract is greater than the GMFV, then you may have equity to put towards a deposit on the new car. However this will depend on the market value of the car at the time so you may need to pay a new cash deposit, depending on the difference between the GMFV on the first car and its market value at the end of the contract. You should check the contract or ask the dealer for details on what happens if you decide to enter into another PCP contract in the future.
Comparing a PCP with a personal loan
The main difference between a PCP and a personal loan is that with a personal loan you borrow the money, pay for your car, and own it immediately. With a PCP contract you don’t own the car, you are essentially hiring it for an agreed period of time, typically three to five years. You only own it if you pay the GMFV. This is important because if you were to run into financial difficulty during the term of your contract you would need permission from the finance company to sell the car to pay off your debt, as they are the legal owner of the car.
How flexible is a PCP?
These contracts are among the least flexible forms of finance. Because the repayments are fixed for the term of the contract, you usually cannot increase your repayments each month if you wish to do so. If you want to extend the term, you may be charged a rescheduling fee.
(Information source: www.ccpc.ie)
The option of Hire Purchase is still available. Rates and repayments are usually higher than PCP, but you own the car at the end. Meanwhile, Credit Union and other bank loans allow the buyer to own the car from the start.
Our finance team would love to speak to you and discuss your finance options in depth to ensure you are picking the best option for your needs & budget. Please do not hesitate to get in touch with any questions or queries you may have.