We’ve all heard the ads by now telling us about the 0% interest rates. Some of you may have decided that PCP Finance is the way forward for you. Well, for those of you who don’t know what it is, here’s our nutshell guide on what’s slowly replacing normal bank loans as a way to buying that new car.
What is it?
PCP finance is a way of paying for your vehicle over a set period of time. While the finance agreement may seem similar to a bank loan, it’s different in a few ways. Firstly, the majority of manufacturers and distributors that are operating in Ireland are offering much better interest rates than what banks are offering for their car loan packages. This is because some car makers have their own banks and the finance can be arranged through that. Other manufacturers make agreements with our banks and they subsidise the customer to get a better rate.
PCP finance generally has three steps once the agreement is signed. The first step involves the customer paying a deposit usually about 30% of the worth of the vehicle (this amount can on occasion be less). The next step will have been agreed before you signed on the dotted line. This is where you have to start making your monthly payments. These payments are generally stretched over 36 months and must be met on time.
The third step is where it gets harder to explain. There are options here. The first option is that you can pay off the remainder value of the car at the end of your repayments and keep it. The final value of the car will have been agreed in advance between you and the dealer – this is what we call the guaranteed future minimal value. This value is based on your agreement that you will only do a certain number of miles on average per year, that you will keep the vehicle well-maintained, that you won’t crash the vehicle, and that you won’t start tearing the upholstery apart. This is why we say that it is important that the small print is read on these agreements. If you think about it, it’s all pretty fair so far.
The next option that the customer has in step three is that they can just hand back the keys, and provided the customer has kept to the agreement, he or she can walk away. This is great but… you’ll have no car!
The last option in step three is to talk nicely to the dealer and ask them to get you into a new car. Haggle with him to get you the best deal possible and start the process all over again.
The small print
While I would be a fan of PCP agreements, I can’t stress highly enough how important it is to read the small print. This is a high-value product and you need to completely stick to what you sign up for. Also, even though this is a financial agreement, the dealer isn’t really doing you any favours, so don’t be frightened to haggle him or her on price, rates, etc. Remember you are the customer and the dealer wants the sale.
This article recently featured in the Sunday World newspaper’s Motormouth pages.