OWNERSHIP vs USERSHIP
Car finance is big business, but the way people are buying new cars is changing, with more buyers looking at cars as something that they use, rather than own
MORE than nine out of 10 buyers take out some form of finance when buying a new car; 91.3 per cent, to be precise. With 1,052,202 private buyers purchasing a new car last year, that works out at just under a million finance packages issued, as buyers opt to spread the cost of getting behind the wheel of a brand-new car.
Personal Contract Purchase (PCP) has long been the mainstay of new-car finance, with around 80 per cent of finance customers opting for this type of package, and buyers like the flexibility a PCP deal offers. Pay your deposit, make your monthly payments and then, at the end of the agreement, select one of three options: hand the car back with nothing further to pay, use any ‘equity’ generated during the contract to go towards the deposit for a new car, or buy the car outright by making the optional final payment.
But over the last few years, a change has been occurring in the new-car market. PCP deals remain kings of the forecourt, but an increasing number of buyers are opting for personal contract hire (PCH) instead. PCH deals, also known as personal leasing, differ from PCP in one key area: rather than offering you the chance to buy the car or use any equity towards a new car, PCH customers must hand the car back at the end of the contract, with no option to do anything else. Furthermore, while PCP buyers can walk away early if they have paid off 50 per cent of the car’s value, PCH customers are locked into the contract, with no legal right to leave it ahead of time.
Those constraints mean that PCH deals won’t be right for everyone, but they’re clearly making more sense to more people, with the proportion of buyers opting for a PCH deal nearly doubling between 2015 and 2018. And one look at the savings offered by some PCH deals (overleaf) gives a good indication of what could be driving people to make the switch.
Could PCH be the right financial product to put a 20-plate car on your driveway? To get an expert insight into the new-car finance market, and help you to work this out, we spoke with the Finance and Leasing Association (FLA) – the trade body that represents UK motor finance.
Trend for ‘usership’ driving change
ADRIAN Dally, the FLA’s head of motor finance, says that the move towards PCH is partly a reflection of changing consumer attitudes. “We’re moving to a usership culture, rather than an ownership one. So the long-term trend over 30 years has been wholesale away from hire purchase and personal loans, to usership products like PCP and PCH.
“PCH would in a sense be the ultimate usership product. That’s the fundamental underlying reason why you see that increase, because a small but growing proportion of the population is fixed that is their need.”
A small but growing proportion of the population is deciding that a personal contract hire meets their need ADRIAN DALLY FLA’s head of motor finance