FINDING THE RIGHT car for your lifestyle and budget can be a tricky process. We want to help streamline the search. As part of our Insights series, every week we’ll take a different car-buying question to the experts at the heart of the motor industry.
This week, we asked William Daly, Assistant Sales Manager at Blackwater Motors Volkswagen at Forge Hill in Cork, to shine a light on the difference between hire purchase plans and PCP (personal contract plans), two of the most common finance options when buying a new car.
1. With PCP, you have more options after your final payment
Standard hire purchase works more like a normal loan, where you pay off set amounts each month until the car is yours. A PCP is essentially another form of hire purchase contract, but with more options at the end of the contract term.
After your final agreed PCP payment, you have three choices: trade up to a newer or better model, pay off the remainder in a lump sum, or hand the car back. People sometimes worry about the lump sum that remains at the end of a PCP agreement, but you can re-finance it so that you don’t have to pay that off in the one go.
Also, the ‘lump sum’ often won’t be that much, relatively speaking. For example, if you bought a brand new Golf now on PCP, at the end of the payment period you’ll probably have €10,000 or less left. As a one-off payment for a Golf that’s all yours, it’s not much.
2. A higher deposit is not always better with PCP
The minimum deposit you can put down for a PCP plan is 10 percent, and the maximum is 31 per cent. However if you put down that maximum 31 per cent deposit on the first day, you won’t have a lot of equity left to play with at the end of the term, which could work against you if you plan to trade up. If you’re used to hire purchase, you may not have considered that fact.
If you’re going into PCP with plans to trade up at the end, we’d suggest no more than 15 – 20 per cent deposit on day one, to give you enough equity when you come back in a few years time.
3. PCP is a smarter and more appealing option for new car buyers…
Right now, our customers are choosing PCP over hire purchase by a wide majority. For example, out of 114 orders we have so far for 181 cars, 45 of those are PCP, and 15 are hire purchase.
Of course, we still get a lot of customers who flat out refuse any kind of finance plan, but if you’re happy to pay a monthly repayment, PCP is a smarter option for a new car. For example, we might get someone in with a used car in mind already, that’ll cost them €350 a month with hire purchase. On PCP, they can drive away a brand new car for €300. It’s a no-brainer in those cases.
4. …But hire purchase will still suit if you’re nervous about finance plans
You’ll always have people who won’t take PCP because they’d prefer to finish their payment plan and simply own the car outright. But more and more, people are learning that cars are a disposable asset, and that it’s easier and simpler to trade up every few years.
5. Maintaining your car is more important with PCP
If you’re planning on trading up at the end of your payment period, you need to keep your car’s condition and mileage in mind. We’re very upfront with people about that.
When someone trades a car with us on PCP, we treat it the same as a normal trade, so the mileage should be no more than 20,000 km a year, and the bodywork and interior should be in good condition. A tip I always offer is to get your car fully serviced before bringing it back to us. That’ll save you hassle and potentially increase the trade-in value.
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