Car Loan vs PCP

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CU Car Loans Vs PCP

Thinking of buying a new car?

Before you opt for PCP finance, compare the total cost and ensure you understand all the small print;

  • Who is providing the finance?
  • Can the car be repossessed for missed payments?
  • Missed repayment fees or Repossession charges?
  • Servicing and maintenance requirements?
  • Penalties for exceeding kilometres allowed?
  • Penalties for not meeting the acceptable return condition of the car?
  • Fees and charges to set up PCP?
  • How will you pay the Balloon Payment? – (If you already took out PCP finance on a car and are approaching the Balloon payment, you can get a MPCC Loan to clear the Balloon payment and keep the car)

Here’s how it works:

Typically, a person will be offered a PCP package at the forecourt when buying a car. The buyer will be asked to pay an initial deposit (usually between 10% and 30%) and then agree a monthly repayment – usually over the next three years. PCPs generally have low monthly repayments, which can make them seem more affordable when compared to other forms of finance. The provider guarantees a minimum future value (MGFV) for the car taking into account depreciation and wear and tear. The MGFV is the amount you will have to pay to own the car at the end of the agreement. It is calculated by the finance company, based on its estimate of the future value of the car at the end of the agreement. It takes into account such things as, the car you are buying, length of agreement, the condition of the car at the end of the agreement and your annual mileage.

At the end of the term of the PCP, the buyer is left with 3 options

  • Pay a final payment (the minimum guaranteed future value or balloon payment) and keep the car.
  • Hand the car back. Be aware that if you do opt to hand the car back, you don’t get anything from the car dealer for its value no matter how well you have kept it and maintained it and you might end up having to pay if you have not complied with all the terms and conditions.
  • Put the car down as the deposit on another car and enter into a further PCP. It is important to be aware that the deposit you put down for the first car will not be available when you give the car back to use when taking out a new PCP. The equity you have built up in your monthly repayments and the difference of the MGFV is what you would have to put towards the new car. All you have to put towards the new deposit is whatever equity you built up from the first PCP. This equity may be less than the deposit required for rolling it over so you will need to top the deposit up each time.

With a PCP agreement, you don’t own the car, you are hiring it for a period of time, typically 3-5 years. You only own it when you make the final payment. This is important because if you were to run into financial difficulty during your PCP agreement, unlike a personal loan, you cannot sell the car to pay off your debt. These agreements are among the least flexible forms of finance. Because the payments are fixed for the term of the agreement, you cannot usually increase your repayments each month if you wish to do so. If you want to extend the term, you may be charged a rescheduling fee.

Before agreeing to a PCP make sure you always read the small print before you sign up. For instance, the cap on the number of miles/kilometres you are allowed to clock up over the period of the agreement. They may also request that you commit to certain car servicing requirements.

Always enquire about any additional fees and charges. You are entitled to a list of all additional charges and fees, so ask the garage for this before you sign up to any agreement. For instance, ask if there is any documentation fee for setting up the agreement, missed repayments fees or repossession charges.

Other benefits of a MPCC CU Loan include:

  • No restrictions on mileage, or where you service your car, or on what make of car to purchase next
  • You own your car from the outset, you can sell it or change it anytime you like
  • You can pay off your MPCC CU Loan early, make additional lump sum payments or increase your repayments without a penalty. Other lenders may charge you extra for paying them back faster!
  • Your MPCC CU Loan is insured, subject to terms and conditions, at no direct cost to you. Other lenders may charge for this

One of the big selling points of PCP finance is that at the end of the 3 years you have the choice to

  • Pay the Balloon payment and keep the car
  • Give the car back and walk away (you may be charged penalties if the car does not reach their “acceptable return conditions”)
  • Give the car back and begin the process again with a new car, same make

To work out the cost of your MPCC CU loan, go to our Loan Calculator, drop in, or call us on 061 424555.

Loans are subject to approval. Terms and Conditions apply.

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