A question I always asked when it came to buying a car. There seems to be many ways to drive a car these days whether you buy it outright, lease the car for a year or two or you go down the route of purchasing through PCP finance. PCP stands for personal contract purchase, a method of paying for a car that has become ever more popular over time. I always remember when I was younger seeing these guys in their twenties driving really nice cars, I couldn’t figure out how they could actually afford to pay 30K or 40K up front. It’s not until you enter the market yourself that you start to learn about hire purchase and PCP finance packages. It all started to make sense as to where these guys were getting the funds to buy these flashy cars. It was a bit of a eureka moment at the time. Now, less of the tales of my youth, let's get into why you clicked on this blog in the first place. There are positives and negatives to PCP method of buying a car, which I’m going to shed some light on, for those who are unsure of how it works.
How it works:
Deposit:
Once you’ve picked out the car you want to purchase, the contract discussions begin. You first have to put down a deposit on the car. In most cases, this ranges from 10% all the way up to 30%. Most garages will offer some trade-in value for your own car if you currently had one, however you’d get more money doing a private sale in most cases.
Monthly repayments:
The majority of PCP contracts last 36 months, with repayments starting from as little as €50 depending on the value of the car. With repayments as cheap as this, you can begin to see why there are so many cars purchased on PCP deals. The monthly repayments can be kept so low due to the lump sum payment at the end of the contract.
GMFV:
GMFV stands for Guaranteed Minimum Future Value, this is the final payment of the contract. If you wish to own the car outright then you must pay this to have complete ownership. It’s quite common for customers to use the car as a deposit on a new car on PCP again. Dealerships will usually contact you at the 24 month period asking to see if you’d be interested in renewing your PCP, using the current car as a deposit against a new one. This is a way of keeping you in their system for another two years at least. The third option is fairly straight forward, you simply return the car to the dealership and the contract is ended.
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Pros:
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Great way to get a car if you can’t afford to pay upfront
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If you don’t want to invest a large amount into a depreciating item.
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You can get a newer version after two years on the same scheme
Cons:
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You don’t own the car until the final lump sum
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APR(Annual Percentage Rate) increases the overall cost of the car
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If payments are not met on time there can be penalty fees or the car can be ceased
To give a real life example below is a mock up of a car that is valued at 37K using a PCP Calculator.
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The Verdict:
PCP finance is not for everyone, having said that if you are the type of person who likes changing their car every few years then I think it is a suitable means of financing a car, so long as you can manage the payments without putting stress on your day to day life. In the end, the dealerships are the real winners as they trap you so to speak when it comes to having you as a “loyal customer” The idea of receiving a new car every two years on the same finance package really is too good to turn down for some people. Others simply cannot afford to pay the GFMV at the end so they continue on for another 2 years with a different car. It really depends on what you can to get out of the deal personally. Alternatively getting a bank loan or credit union loan may be a better option as you technically own the car, however, the repayments on the loan will be slightly higher. Plenty of food for thought, hopefully, you have a better understanding of PCP finance from an unbias perspective.
As always if you have any questions regarding any of our blog topics or queries about car parts or accessories, shoot us an email at info@micksgarage.com and our team will help you to get Car parts for less.
Until next time,
MicksGarage.com the Car Parts Experts
