CCPC launches study of PCP car finance market
July 17, 2017
17 July 2017: The Competition and Consumer Protection Commission (CCPC) announced today that it has commenced a study of the Personal Contract Plan (PCP) car finance market. PCP is a form of hire purchase that is an increasingly popular car finance product, with many car dealers now marketing PCP as their primary method of finance.
The CCPC’s study will examine the experiences of consumers in this market and assess the information provided to them at the point-of-sale. The study will also analyse consumers’ understanding of PCPs, including the structure of the product and the options available to them at the end of the agreement. The findings of the study will determine the suitability of the current consumer protection regime and help inform any future policy decisions.
The CCPC is aware of issues that some consumers have experienced in relation to PCPs. Such issues concern a lack of awareness of certain terms and conditions, uncertainty as to what certain terms and conditions mean at the end of their agreement and questions around the regulatory status of both the credit intermediary selling the product and the lender, with whom the consumer enters into the agreement.
Speaking today, Isolde Goggin, Chairperson of the Competition and Consumer Protection Commission said, “After a mortgage, the purchase of a car is likely to be the biggest financial commitment a consumer will make. From our interactions with consumers we know that PCP is an increasingly popular way for consumers to finance the purchase of a car. However, these products are relatively new and considering their complexity there is potential for consumer misunderstanding and detriment if they take out a product that may not be suitable for them. The information gained through this study will guide our future work and form an evidence base that can be used by policy-makers to assess the suitability, or otherwise, of the current consumer protection regime.”
Ms. Goggin continued, “In addition to an extensive analysis of the market and engagement with the industry, this study will focus heavily on the consumer experience so it is important that consumers have their say. We would like to hear from those who have a PCP agreement, particularly anyone who either experienced problems in understanding the product before buying or had difficulties after they signed up to the contract. You can contact us through our website ccpc.ie.”
Information on Personal Contract Plans (PCP) and how they work is available on the CCPC’s website.
The CCPC has a statutory remit to provide consumers with information on the costs, risks and benefits of financial products. It also licences the credit intermediaries, many of whom sell PCP products to consumers.
How does a PCP work?
PCP is a type of hire purchase contract. You don’t own the car until you have made the final payment. With PCP, payment is broken down into three parts:
- The deposit – the deposit is typically between 10% and 30% of the value of the car, depending on the finance provider. Your deposit can be paid in cash or if you already own a car, you can trade this in for part or all of the deposit, depending on its value.
- Monthly repayments – PCP contracts are usually made for terms of at least three to five years. PCPs generally have low monthly repayments, which can make them seem more affordable compared to other forms of finance.
- Guaranteed Minimum Future Value (GMFV) – a large, final payment, is how much it will cost you to own the car at the end of the contract. It takes into account such things as, the car you are buying, length of the contract, the condition of the car at the end of the contract and your annual mileage. This final payment is set at the beginning of the contract, based on the finance company’s estimate of the future value of the car. If you are entering into another PCP the GMFV is subject to you meeting all the terms and conditions, including any mileage restrictions, you agreed at the start.
At the end of the PCP contract, there are a number of options:
- Pay the GMFV, to own the car. There may be other fees associated with buying the car for example acceptance fees or completion fees which should be outlined in your PCP contract. You could also refinance the GMFV by taking out a new finance contract as the GMFV can be a large sum of money. This would mean you are entering into another financial contract.
- Hand the car back. Be aware that if you do decide to hand the car back, while you generally don’t have to pay the dealer anything, you might end up having to pay a penalty if you have not met all the terms and conditions, for example, if you have exceeded any mileage restrictions agreed at the start of the contract or if there is excessive ‘wear and tear’ on the car. You also will no longer have the car.
- Enter into another PCP contract to buy a new car. It is important to be aware that the deposit you put down for the first car will not be given back to you. If the market value of the car from your first/previous PCP contract is greater than the GMFV, then you may have equity to put towards a deposit on the new car. However this will depend on the market value of the car at the time so you may need to pay a new cash deposit, depending on the difference between the GMFV on the first car and its market value at the end of the contract. You should check the contract or ask the dealer for details on what happens if you decide to enter into another PCP contract in the future.
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