If you are about to change car, be careful out there
Sometimes if a deal is too good to be true, then it actually is.
If you can’t trust a car salesman, who can you trust? So said Robin Williams in Cadillac Man, a movie with a typically cynical view of the car business. The line is loaded with irony and his character is about as trustworthy as… well, as a car dealer (see panel). Car dealers, often unfairly, don’t get a good press. But in some ways, there are reasons for their bad rep. Like all salespeople, they want to shift product even if that means hyping it.
This week, the Competition and Consumer Protection Commission (CCPC) reminded us how careful we have to be when buying a car with a major report into Personal Contract Plans. These are the financial instrument behind a fundamental change in how cars are being sold. Instead of quoting the price of a car, dealers now say how much we have to pay every week.
Now €37 a week sounds a lot cheaper than forking out €16,000 for a new Nissan Micra, for example. But this type of finance can disguise the true cost and there are pitfalls.
With PCP, you basically repay for only the depreciation in the car. This makes the sum you have to pay every week seem lower than it really is.
Wow! Some people think, I can get that Micra for just €37 a week! But you are really only renting the car – and paying interest on the rent.
Say buyers make 36 payments over three years. Those repayments are meant to reflect the fall in value of the car. But you also make a balloon payment of €5,000 (in the case of that Micra) that is supposed to reflect the car’s residual value.
There may also be penalties if you go above 10,000km, or for wear and tear. This can be onerous, as one of our readers – Patricia from Waterford – discovered.
‘I would never have financed the car if I knew about the mileage limit. My husband was with me and he never heard the salesman refer to mileage. I am both angry and upset, as it could mean a €5,000 extra bill,’ she told us. The CCPC warns that consumers often don’t fully understand what’s involved.
It pointed to gaps in regulation where dealers don’t have to fully check the suitability of buyers, as other finance firms do.
The report also stressed advantages to PCP, with many customers happy with their experiences. Interest rates can be lower because they are backed by car makers who want to boost sales of new cars (mainly). The catch is buying a car when new is the worst time to get good value.
The best time is when a car is two