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IRELAND’S CONSUMER WATCHDOG is to look at whether consumers understand fully what’s involved with a car financing loan called a Personal Contract Plan, or a PCP.
A PCP involves paying between 10-30% of the value of the car at the start of the contract; then paying monthly installments, usually lasting between 3-5 years at a low-rate; and finally paying a lump sum at the end of the contract if you wish to buy the car.
The deal is especially useful for those who don’t want to own a car, and can skip the final purchasing step and jump to another PCP loan, effectively renting a car instead of owning one.
The launch of the investigation comes as the deal is becoming increasingly popular in Ireland because of the low-monthly repayments.
A spokesperson for the Competition and Consumer Protection Commission (CCPC) Fergal O’Leary told Morning Ireland it’s ”probably the only way that new cars are being financed”.
O’Leary, who oversees the Consumer Enforcement division of the CCPC, said:
When you get into the amount of money that’s involved, your €30,000 €40,000 €50,000 – there is a lot of exposure for consumers in this market.
He added that the investigation would look at whether consumers understand the deal on offer, what are the experiences of customers, and the terms and conditions contained in contracts.
O’Leary added that although there had only been a small number of complaints about PCP loans, what’s causing concern is “they’re asking fairly fundamental questions about products”.
He said that questions like, ‘Who owns the car?’ and ‘How many contracts do I have?’ were asked, which were “very fundamental questions that people should understand before they take out these finances”.
They are complex products, and I think what we need to find out is: do consumers understand fully what they’re signing up to when they agree to buy one of these products, and have consumers had problems?
With a PCP, you have one contract with the garage, and another contract with the credit union or bank that the PCP loan was taken out.
At the end of the contract, the minimum final payment to own the car – or the Guaranteed Minimum Future Value (GMFV) – will have been decided at the beginning of the contract. It takes account of the type of car you are buying; the length of the contract; the condition of the car at the end of the contract; and your annual mileage.
With a PCP loan, you don’t own the car until the last payment (GMFV) is made.
Fianna Fáil Spokesperson on Finance, Michael McGrath welcomed the investigation today, but also outlined some of his concerns around the lack of regulation and authorities’ responses thus far.
He said that the CCPC made the government and the Central Bank aware of their concerns previously, but that no action was taken. He also expressed concern that no data had been collected by authorities on the number of PCP loans in Ireland.
“As of now nobody in the CCPC, Central Bank or Department of Finance knows how many PCPs exist and crucially how many customers are defaulting,” he said. “It is in the best interest of all concerned that these issues are addressed.”
It will take three or four months for the CCPC to produce an initial study, and depending on what the problems people have had with PCP loans, new regulations could be put in place by the Commission.
You can learn more about PCP loans here.
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I used PCP for almost all the cars I’ve driven in the uk. I learnt along the way… over state your mileage, the garage want to show you how wonderfully low your payment is by convincing you that you’ll do 5k a year. Don’t let them, tell them a realistic figure with a margin built in, then let them quote you. Remember they want you to sign and they’ll bargain.
You cannot as someone suggested get around the final payment by selling the car. It’s not yours so you can’t sell it, what you can do is make the final payment, settle the deal then sell. Which I would only do if it was to my advantage, ie way below the target miles and in good nick. The main rip off is the APR. Add up deposit, all payments and final payment. That’s the true cost and compare to a loan for the full value.
@Niall Finucane: excellent comment Niall.
@Niall Finucane: great advice…thks
and of course there is NO connection with insurance companies riding us folks who don’t take on needless debt on a depreciating asset…nope none, move along and keep looking at the shiney things…..
@idiot taxpayer: you’re right. There’s no connection.
@idiot taxpayer: Well seeing that the bulk of the premium is for third party cover you are of course correct.
@David Murphey: There is a connection. And watchdogs in the UK are investigating according to the BBC. This a massive billion £ bubble that extends to Ireland.
The same companies that back insurance brokers (i.e AIG, etc..) are also involve in PCPs
Yet another debt bubble building up!
Get a loan off your credit union and go buy a used car in reasonable condition, at least you’ll own it after a couple of years…
@Dub_Right: the credit union charge higher than market value apr on loans than the banks. Don’t go to the credit union unless you’re mad in the head
@Dub_Right: You could also go hire purchase. Payments are higher than PCP but buy what you can afford to pay per month and you own the car in 3-5 years with no hefty lump sum at the end.
@Hupthejaysus: Yea PCP’s are a bad deal.. if you trade in your old car for say €4k, you loose that when you go to renew the new car in 3 years time..
@Eoin M Naughton: get your facts correct nothing hidden with CREDIT Union s
PCP is a con. Came close to doing it myself until I seen the milage limits, reckoned I would be better off hiring a car instead of having a new plate(for 6 months)
@Government Sachs: its definitely not a con. It’s a really good option, just doesn’t really suit commuters with large milage. But I only live 6km from the city centre so I have very low yearly milage like less than 5k as I cycle a lot.
@Chilli: Of course it is a con, the clue is in the fact that you have to deal with a bank or a financial institution! These places think they rule the country and they seem to think they are entitled to rip us off with the governments blessing.
@Jho Harris: it’s definitely not a con. It’s a mechanism to entice people to. It new cars. It’s suits some people and therefore it’s great for them. At the end of the day you need to read the terms, work out the costs and decide. Just like anything in life. Sign and and whinge afterwards is no answer.
@Jho Harris: I think you’ll find the are not your traditional banks that you loathe!! They are usually set up by the car firms so your borrowing from the bank of skoda or bank of vw etc… if you think using a bank for loans is moronic, well fair play to you for being so cash rich but for the rest of us with mortgages. Getting a loan is nessesary
I find that most people have no clue about the costs involved in motoring.
Purchase price
Tax on earnings
Vehicle Tax
Insurance
Nct
Fuel
Service
Tyres
Depreciation
Interest.
The state gets roughly about 40% of the total cost through vat and income tax.
Heaven forbid Irish people would plan ahead and save for a purchase. Hence the boom/bust economy.
@The Guru: the best option, that’s obvious. But only if not too many people are doing that. Our economy is not set up that way, the disposal income portion is constantly being mopped up. They (market forcee and even government) think, oh look, people are saving, there’s more disposal income now let’s push up taxes, or take increases in utilities, or rents or insurances or whatever. Let’s take it all to affordability limit. That way, for the majority, there is always debt, and a constant debt is a good tool to manage the economy. It’s dependency and control for the middle, while welfare provides this for the lower end. It’s the main reason why they want to go cashless, fraud is a sideline, it’s for mopping up freehold money.
@The Guru: so very very true.. the next door neighbour has a new car so we must get one now . Except bigger
@The Guru: as the last boom showed and Tommy Tiernan says about Ireland / we are not great with money
I presume most are small struggling business men trying to look successful ,all the very best, but i would not touch them with a barge pole .
Just buy what you can afford. The only item you should ever need a loan for is a house. I spent 3 grand on my car 5 years ago and it is still in perfect working order.
@Donal Martin: but it is our god given right to own shiny new things and not actually pay for it up front. Are you suggesting we become a nation of people who save, plan ahead and live by our means?
How dare you. How bloody dare you.
The GMFV is normally based on ridiculously low mileage of 10,000km per annum. This is where the real issue is as they charge you per km at end of contract if you wish to hand it back. You can work around this by selling the car and paying the final payment
@Michelle_Herbert: y
@Michelle_Herbert: Standard is 20k per annum .
@Michelle_Herbert:
Most have different GMFVs depending on what yearly kms you choose. If you want to drive a new car every 3 years this is an excellent product. If you are buying a car you intend to keep for 6 or 7 years then its not so good.
People need to take responsibility for their own finances. Surely if someone enters a loan agreement and doesn’t understand the basic terms, that is their problem.
@Craba: The mileage limits only apply if you hand the car back at the end – not if you pay it off in full or trade in for another car.
why is something as serious as signing up to a any sort of finance package allowed onto the market without going through a number of strict guidelines. The amount of people who havent got a clue regarding loans,mortgages, APR and the serious consequences if you fail to pay what you owe
@Ger Kelly: people don’t think ..and don’t want to know…thats sinceable
@Terry O’Callaghan: That’s how the bust came about, it’s all grand until the following morning’s hangover. People never learn.
About time being sold with false advertising
No mention of the balloon payments at the end
CREDIT Union s are the best car finance offer what you see is what you get
@Michael Lyons: True. but if all the years in school couldn’t teach some people to use simple addition and multiplication for a basic repayments schedule then they deserve any amount amount of trouble they end up in.
Got a great deal on mine!
The icing on the cake is that my first born, who was a lovely little fella when I signed, is now a hulking teenager and the responsibility of the hire purchase company to feed and clothe. :- )
It really is very simple..if you cannot afford a credit union loan..or bank loan ..do without… why you would consider putting yourself into major debt to drive a 171. Is mind blowing.. for years I did it..and I can honestly say it’s pointless.. there is a sea of used cars out there in top condition.. garages must be looking for space to put them. So I’m sure a bargain would be found.
@Terry O’Callaghan: I’m not disagreeing with you but unfortunately someone has to buy the new cars to create all those lovely used ones!
Never got the fascination with new cars, outside of the finance options, the initial depreciation when driven off the forecourt is horrific. Cars from about 08 onward are a great option.
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