Some helpful information to answer your questions and dispel any PCP myths!
PCP (Personal Contract Plan) is a flexible Hire Purchase agreement that enables you to have a reduced monthly payment thanks to a Guaranteed Minimum Future Value (GMFV) for your car in 2 or 3 years’ time. Having a GMFV for your car means that you can have a selection of choices at the end of your agreement that suits your circumstances and you don't need to worry about the re-sale value of your Car in 3 years’ time.
You pay a flexible deposit between, minimum 7%. Your car can be accepted as a deposit. Your dealer will agree a GMFV based on your needs and you repay the difference between both. You only pay for the portion of the car that you need. This is how the repayments are kept low. Like any hire purchase agreement you will still fund the car minus the deposit you have paid.
You will have three choices when your PCP agreement comes to an end:
There is a common misconception that you have to return your vehicle to the dealer that you purchased your vehicle off. It is possible for another Dealer to purchase your vehicle and settle the outstanding PCP agreement.
As with all forms of Hire Purchase, until the final payment is made in settlement of the PCP agreement, the car is legally owned by the finance company or bank who funded the car. However your name is on the Log book for tax and insurance purposes.
This is the guaranteed value that your dealer has agreed to buy your car back in 2 or 3 years’ time. This can depend on mileage. This does not mean your car is worth this. Your car could or even should be worth more than that. Please check our valuation for a guide
Providing you return your car in good condition and within the mileage parameters set out in your PCP contact, the value of your car will be protected with the GMFV. However, if your car has bodywork/crash damage or if you have dramatically exceeded your mileage parameters, this could impact on the future value of your car.
At the end of your agreement if you choose to sell your car either to a dealership or privately, the difference between the sale price of the vehicle and the agreed GMFV is known as your equity.
GMFV = €8,000
Sales Price = €10,000
Equity = €2,000
You can choose to exchange the vehicle, or use the equity, as part of the deposit for a new vehicle.
Yes, you are free to settle your PCP agreement at any time. This will be mean you take ownership of the car earlier. You can also trade in your vehicle for a new one at any point.
PCP is a Hire Purchase product. Hire Purchase is the most common form of car financing. Hire Purchases are regulated under the Consumer Credit act 1995.
Any Car Dealership that sells finance products is obliged to be authorised as a credit intermediary. These are authorised by the Competition and Consumer Protection Commission.
Under Mileage: The GMFV is based on the mileage and wear and tear of the vehicle. If the mileage is lower than expected and the condition it good, it is probable that your car is worth more than the GMFV and therefore you will have positive equity.
Over Mileage: As part of the end of contract conditions, an excess charge applies where that usage is exceeded but this is generally only applicable if you wish to handback the vehicle. A typical charge would be 0.6c per KM. Source Renault Bank. Example 500KM x €0.06c = €30. It is not applicable when you are selling the car privately. Where you are upgrading to a new car, it is in the dealer’s interest to give you a competitive trade in valuation and therefore not penalise you for over mileage as long as it is within reason. The GMFV is not designed to be the trade in value but a minimum trade in value.
Myth Buster: Any car dealership can agree to purchase your car from you. It is not mandatory to go back to the dealer you purchased it from. There could be equity in your car which contributes to a deposit towards a new or used car.
Myth Buster: A PCP is a form of hire purchase (HP), so you are buying the car over time. It doesn’t officially become your property until the last euro is paid off, just like a classic hire purchase or the mortgage on your house, but you are making payments towards eventual ownership unless you choose not to make the final payment.
Myth Buster: This is another misconception, consumers are often told that they are not borrowing the full value of the car. When you take out a PCP agreement, you are borrowing the whole value of the car, minus any deposit. However, you don’t repay GMFV until the very end, so you have 36 smaller monthly payments followed by one larger payment, that if you choose to keep the car.
Myth Buster: This one isn’t true either. Some people seem to think that if your circumstances change or you can no longer afford your payments, you can simply hand the car back to the dealer or finance company and walk away at any time. PCP works in the same way a traditional hire purchase agreement works.
However there is a clause in all PCP agreement called Voluntary Termination, which allows you, in specific circumstances to terminate the contract. If you have a current PCP finance contract you can check the terms and conditions to understand how this works in greater detail.
Myth Buster: Technically this is not true, you can pay a deposit of between 7 & 35% of the sale price of the car in most PCPs however it is very important to understand what will happen at the end of the PCP agreement. Regardless of whether you pay a small deposit or a large one you need to understand what could potentially happen at the end of the agreement. Please see the explanation below, bear with us…..It’s good to know.
For simplicity, let’s assume that your next PCP deal is similar to the first one in terms of the price, the interest rate and the Guaranteed Minimum Future Value.
Retail Price = €20k, Interest rate = 5% & GMFV = €8,000. Your car is worth €10,500 (trade in value) in 3 years’ time. Potential Equity: €2,500 (trade in value minus the GMFV).
There is no additional deposit required for the PCP deal number 2.
Scenario 1: Deposit €2,500
The monthly payment in the 2nd PCP deal is more likely to be similar to the monthly payment from the 1st PCP deal and it is feasible that a deposit may not be required to get to the same monthly payment. The finance amount borrowed is higher as the deposit is lower.
Scenario 2: Deposit €5,000
The monthly payment in the 2nd PCP deal is more likely to increase dramatically which is not in line with the current monthly payment (PCP Deal 1). To reduce your monthly payments then you will need to have additional deposit, which is fine but often consumers are not aware of this.
The lower the monthly payments the less of the finance amount and interest you will pay and the higher the monthly payments the more of the finance amount and interest you will pay.