With the price of new cars coming down in the last few years, the market remains weak. However, various finance offers are being made available to make new cars more attainable then ever.
The newest offer, the Personal Contract Purchase (PCP), differs from traditional forms of finance (i.e. bank loans, hire purchase) since it does not have to end in eventual ownership of the car. With bank loans and hire purchase, ownership is often validated after the last payment is made. PCP is a more affordable way to get a new car. With PCP, you pay a deposit and monthly installments over a fixed term. However, unlike HP or a bank loan, the payments are lower and at the end of the term you have the choice of whether to make the final payment of not.
A PCP comes with a guaranteed future value which is treated as the car’s final payment so you know exactly what it will be worth at the end of the agreement. This agreement gives you some choice. You can make the final payment and own the car or you can part exchange the car and use the excess to fund the next purchase. Many will use the equity in the car to act as a deposit for a new PCP deal and take advantage of this cycle every few years. So for example, if the final payment is Ђ7,000 but the car is actually worth Ђ8,000, you can use this surplus of Ђ1,000 to put a deposit down on your next car. You can also choose not to make the final payment, just turn in the keys and walk away.
The advantages of a PCP mean that a car-buyer can avail of a new car every three or four years at monthly payments that they are comfortable with and with manufacturers like Nissan, Ford, Citroen and BMW all offering this kind of finance, it looks to be a popular option for the future.
Courtesy of Sunday Independent 16th June 2013