PCP – Personal Contract Plan

Bank of Ireland have started a PCP scheme aimed at second hand cars.  You can buy a car that is less than 18 months old and then after two or three years you can either trade it in for a guaranteed value or exchange it for a new a new car using the old one as a deposit.

What is a PCP:
A Personal Contract Plan is a payment scheme that allows buyers to pay a deposit then repayments that are only a little bit more than the depreciation of the car before exchanging it for a new one in three years time. The buyer does not own the car unless they decide to pay out the remaining value of the car at the end of the term of the contract.
Usually a PCP is only available for new cars and the buyer will agree on an annual mileage with the bank. For example, if a car was worth €15,000, the buyer will pay a €5,000 deposit then agree to make repayments over three years based on a €5,000 loan.
Bank of Ireland are working with dealerships to make sure that buyers have enough money at the end of the contract to use as a deposit for their next car.

PCP versus Hire Purchase
A hire purchase scheme is when the buyer chooses their own payment and is spread out between 12 months to five years. They only own the car when the final payment is made. In a PCP scheme, the buyer can choose to either walk away after three years and either use the value of the car to enter into a new contract or they can decide to pay the agreed future value to buy the car.

Advantages:

  • The buyer gets a new or nearly new car for a relatively low cost.
  • The buyer could get a new or nearly new car at the end of each contract.
  • The repayments are a lot less than on a hire purchase agreement.
  • It is targeted at younger buyers. Young buyers have become used to using pay-as-you-go products. Another example being mobile phones.

Disadvantages:

  • Buyers may become locked into one brand/dealership if they decide to change their car every three years.
  • If they decide to hold onto their car beyond their term of the PCP, they might face higher repayments.
  • If they do not want to change their car they will have to buy out the remaining value of the car resulting in the loss of their initial deposit.
  • If the buyer finds they are driving more than the agreed mileage, they will have to pay for the extra distance driven. This can be up to 10c per kilometre.

A tip from Tom Cullen of SIMI;
There is a lot of competition in the car finance market as a result of Renault Bank and Volkswagen Bank lending to customers directly. He recommended looking at all the available options before going for a PCP.