The Myths Surrounding HP/PCP

Most of us, are not in the position to simply shell out 15, 25, or €30,000 on a new or nearly new car. What we do then is either approach either the Credit Union, local bank or take advantage of our local dealer finance scheme. There are some good and bad points about all of the above, let me try to sort them out for you. 

1) Credit Union: In the UK, they are called Building Societies, which have evolved over the years to be more like a bank, but they started out like the Credit Unions that we have in Ireland. Good points about the Credit Union are that they are extremely personal, they work on your history with them and the relationship that you have built up. They often included life insurance so as in troubled times, the debt is not transferable to the estate and you can pay them weekly, fortnightly or monthly. Also, there are no penalties for clearing the loan early.

Some bad points are that the loans are variable so in uncertain climates, like those we are facing with the advent of Brexit, your payments can go sky high. Rates are competitive, but if during that introductory load period, you increase your loan, then the new and old balance are calculated at a much higher rate. Lastly, getting a decision can take days and you often feel like you are going to see the headmaster to get a pass out. They also, do not offer a PCP facility.

2) Banks: Loans from the banks are highly regulated and are tougher to get nowadays. They are also more likely to offer you a variable rate loan, which unless you have a crystal ball, in my opinion, doesn't make sense. You have a lot of red tape and again, the rates are creeping up which makes them virtually uncompetitive.

3) Dealer Finance: This is where we as a dealer get to save you, the customer, some money. Most dealers finance will be at a much lower rate, ranging from 0% to 7.9% and more importantly, those loans are fixed. This means that whatever happens with rates over the term of the loan, your payment will not go up. This has the chance of saving you a small fortune over the loan term. Setting up a loan with your dealer is so much easier and you do not feel like you have just taken that trip to the headmaster. Not only that, but most dealers, will have an answer back within a few minutes to an hour or so. This will save you time and make sure you get to have the car you want.

Now, to some of those myths I promised to bust. First, let’s tackle the elephant in the room, PCP. In the UK, 90% of all new cars that are financed, are financed on PCP. Why, because depending on your circumstances, it simply makes more financial sense. Rates are often lower and as long as the sales person asks the right questions, then it could be a much better way to finance your car.
 
Question, what loses money each month you own it? Answer, a car. So why, would you want to sink your hard-earned cash into a car? PCP, for drivers that are not doing horrendous mileage, is often a perfect way to finance a car. "But you never own the car", I hear you cry, "You have a balloon payment at the end", you now scream. Imagine that you have a 5-year HP deal on your car, you own the car, you have a registration document in your name. It’s the same with PCP, you own it, the registration document is in your name. Now, whichever way you finance it, the bank or financial institution have an interest in the car, but, you own it.
 
With HP, let’s say that you want to change your car 3 years into a HP agreement, then what you do is call the loan people and get a settlement figure. If the car is worth more than the settlement figure, then that equity goes towards the deposit for your new car. Well, that’s PCP. The only difference is that the agreement is only set up over 3 years and the settlement figure is set in stone for the end. You then simply take whatever equity and transfer it to your new car. The main difference between HP and PCP is, if you are in negative equity in the HP deal, you must pay it, on PCP, simply hand it back and the dealer has to pay the negative equity, so it basically protects you against negative equity.
 
Now, there are mileage conditions, but you set these up with the sales executive at the beginning of the agreement. If someone is doing 30K KM per year, then I would not recommend PCP, but for anything under 20K KM per year, its simply the cheapest way to finance a car.
 
Dealers do and have pushed PCP, why? Because most people who have purchased a car on PCP, if their car has been a good car and they have received quality service from their dealer, will go back in 3 years or less, and buy another, so its good business.
 
Is it good for you, you won’t know until you speak to someone who understands PCP, fully? 
 
Now, the big myth to bust. So many people come in and say they are buying cash. They think, that this will get them a bigger discount. NO. NO, NO, NO. I always ask that customer, will it be €50 notes? Because, we will have to charge you more because the banks charge us to lodge it. We will also have to carry out due diligence for the Revenue to make sure the funds have come from a reputable source and not the proceeds of crime. Will it be a personal cheque, because that will take 7 working days to clear and will delay you collecting your new pride and joy. Bank draft, that’s great, but you will have to order it, then most likely que for a while to go and collect it. Hassle, hassle, hassle. The deals available with dealer funding, not only save you money, but just make everything easier and quicker. The best deal is NOT the cash price. I was €500 more as a balance to change last week for a customer on a new car. But, when you factored in that my finance rate was 4% lower, I was nearly €1000 better and the customer saved money.
 
Look, as a dealer, we will above all, give you honest advice and deliver options to you that you decide upon. After our past financial issues in the Celtic tiger times, the Central Bank has now issued guidelines for anybody conducting financial affairs on behalf of customers. The main one for me, is “Duty of Care”. We have a Duty of Care to give impartial, fair and honest advice to you, the customer. We also a totally free finance review within the dealership. No matter who you have financed your current vehicle with, no matter how long you are into that agreement, we will carry out a totally free review of your situation and maybe, just maybe, you could find yourself in a position to swap to a newer vehicle, earlier than you think.
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I hope some of the above has lifted the lid of the funding concerns that you may have. Thanks for taking the time and trouble to read this post, James Mc Vicker, Sales Manager, Barlo Motors Thurles