The Competition and Consumer Protection Commission (CCPC) announced that it has commenced a study of the Personal Contract Plan (PCP) car finance market
If you have bought a car on a PCP agreement, particularly if you have either experienced problems in understanding the product before buying or had difficulties from the time of siging up to the contract then the Competition and Consumer Protection Commission (CCPC) would like to hear from you.
The CCPC’s study will examine the experiences of consumers in this market and assess the information provided to them at the point-of-sale. The study will also analyse consumers’ understanding of PCPs, including the structure of the product and the options available to them at the end of the agreement. The findings of the study will determine the suitability of the current consumer protection regime and help inform any future policy decisions
Personal Contract Plan (PCP)s is a form of hire purchase that can be 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.
Guaranteed Minimum Future Value (GMFV)
The GMFV is based on an estimate of the future value of the car at the end of the agreement, e.g. 3 or 5 years. Ideally the car will be worth more than the GMFV when the contract ends and this difference can represent a deposit for the next PCP contract.
Monthly repayments
PCP agreements are usually made for terms between three and five years. The Monthly repayments are the price of the car, less the deposit and less the GMFV plus interest.
At the end of the contract you can
- Return the car, provided you have met the terms and conditions you can simply hand back the keys.
- Buy the car outright by paying the GMFV.
- Roll on to another PCP, and if the car is worth more than the GMFV use any extra equity toward your next deposit.
What are the regular misunderstandings/problems
- PCP adverts on the radio and in newspapers promising you could drive away in a new car for €200 a month are based on a 30% deposit NOT on a 10% so for a car worth €24,000 that means a deposit of €8,000.
- In most first PCP contracts the deposit is funded by trading a car in and this usually equates to a 30% deposit; this allows you benefit from the low repayments that come with a high deposit – however when the contract is over and if you decide to opt for another PCP there is no car this time to trade in so you need to have saved this to get the same deal again or have made substantial equity in the first PCP deal.
- It is your responsibility to keep up servicing, repairs etc and not drive it over a maximum distance per year (this is usually around 15,000km-20,000km) so never underestimate your mileage when negotiating a PCP.
- Generally if you are intending to own the car at the contract then PCP is not the ideal form of finance. You would be better off with a loan from a bank or credit union whereby you can spread the payments evenly over a three or five year period.
You can contact the Competition and Consumer Protection Commission (CCPC) through their website
You can listen back here ( 1:15 mins in to the broadcast) to Geraldine Herbert talking to Drivetime on RTÉ Radio 1
Geraldine Herbert
17th July, 2017
