Get­ting to grips with PCPs

The Kerryman (South Kerry Edition) - - DRIVE INTO 191 -

PER­SONAL Con­tract Plans (PCPs) are now a very pop­u­lar way of fi­nanc­ing your new car but they con­tinue to cause con­fu­sion among buy­ers.

That is es­pe­cially the case around a cou­ple of key con­cepts.

The first is ‘fu­ture guar­an­teed min­i­mum value’. This is the amount the car will be val­ued at af­ter (usu­ally) three years, pro­vided you’ve met all the un­der­tak­ings on mileage, wear-and-tear etc. But it is NOT your car or money. You will have to pay that amount to own the car if you wish. It is the amount out­stand­ing on the ve­hi­cle.

Call it a bal­loon pay­ment if you like, but it is NOT your money and you can’t use it as a trade-in value against a new car. Some peo­ple think you can.

The sec­ond one is eq­uity. This is the dif­fer­ence, if any, be­tween what the car is worth on the mar­ket and the afore­men­tioned guar­an­teed min­i­mum value.

So if the car has a €20,000 min­i­mum value and the mar­ket shows (you can shop around) it is worth €24,000, you are €4,000 to the good. That is €4,000 worth of eq­uity you can put to­wards a de­posit for your next deal.

The ideal PCP is where you switch to a new deal pay­ing the same amount each month for a new car. It doesn’t al­ways work out that way.

It is im­por­tant that you get down and dirty with the facts and fig­ures of do­ing a PCP a sec­ond time round es­pe­cially. That’s when there seems to be the po­ten­tial for mis­un­der­stand­ing and dis­ap­point­ment.

Don’t for­get, many peo­ple of­ten go into the first PCP deal with a trade-in or de­posit/cash up front. Quite of­ten, they can go into the sec­ond deal hav­ing to find money to top up their de­posit. That is when the real world of PCP can hit home with a vengeance if your first deal has not been struc­tured to suit you.

PCPs are an amal­gam of balanc­ing acts. If you have a large de­posit first time around and your re­pay­ments are lower as a re­sult, you could find the sec­ond time around, with­out a big de­posit, that you are fac­ing a steep in­crease in monthly re­pay­ments.

For all that, and in the main, PCPs ap­pear to be go­ing well and the ma­jor mo­tor­ing fi­nanciers all re­port sub­stan­tial lev­els of lend­ing and sat­is­fac­tion.

But it’s no harm to be sure of what is in­volved.

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