PCP in the media

Over the past couple of months, the press has been alive with vehicle finance stories

This came following the announcement that an investigation was to be carried out by the FCA into the miss-selling of vehicle finance and in particular Personal Contract Purchase agreements (PCP’s).

As a result I have been commenting, on behalf of the NACFB, in most online and offline national newspapers and trade journals from the Times, FT and Mail through to AM Online, Mail Online and AutoExpress, and even as far away as Malaysia and India – the NACFB goes global!

Sadly most of what is being reported is total bunkum. Several journalists have compared PCP’s with sub prime lending, suggesting that those taking out PCP agreements can ill afford the payments creating a financial bubble about to burst, as happened with mortgages in 2008.

So in this piece I intent to put the record straight and answer questions that you may have if you are indeed thinking of taking out a PCP agreement or are in the middle of one. Incidentally, don’t come to me for a PCP as I don’t offer the product. As a broker I concentrate on PCH, a better and invariably cheaper product.

Is PCP available to those with poor credit? Definitely not. The funder, normally the manufacturer’s own finance arm, takes a relatively small deposit and can charge as little as £250 per month for a £25,000 motor car. With that level of extreme exposure by the leasing company, if you think that you don’t have to be totally squeaky clean to be approved for finance you must think the lender is nuts and/or you are deluded! PCP is not for the credit challenged.

Is it a good product? Yes it is, there is nothing wrong with it and with over 85% of new cars financed by consumers on PCP’s it is clearly a hit with those who may only have been able to drive a 2 or 3 year old car for the same down payment and monthly repayment. As more people drive new cars the environment improves, drivers have lower running costs with better MPG and the great feeling of driving a brand new car.

What are the catches? Sadly the profit motive has taken over in many dealerships with very little regard to their FCA legal obligations, hence the reason for an investigation. Dealers are under pressure to sell more new cars by the manufacturer and to sell them on finance which earns them more profit out of the one customer. And guess which finance product earns most profit? Yep, PCP – so firstly make sure that you are signing a PCP agreement. There has been a lot of concern over hire purchase agreements with a balloon payment being sold as PCP. The big difference here is that you must pay the final balloon payment. It will simply come out of your bank account by DD. You have no right to return the car at the end of the agreement as you do with a PCP. It means the customer takes the risk in the final balloon payment, not the lender.

Moneysavingexpert.com has revealed that 80% of all cars on PCP are returned at the end of the agreement but many are still convinced to take out a PCP rather than a cheaper PCH ‘because it gives you the option to buy the vehicle’ which PCH doesn’t. They then give the car back anyway whilst paying more per month – daft!

Giving the car back can present another set of challenges that aren’t usually explained by the dealer. First of all there are end of lease charges which I don’t think are always unfair. Excess mileage over the contracted mileage is a result of the car now being worth less than expected – not unreasonable. Repairing dents may be a cost to you but had you owned the car and part exchanged it the dealer would have knocked money off his offer – same difference.

Finally, there are the unforeseen extra charges. For example if you can’t find the spare key that came with the car you will be charged for a replacement. With car ‘keys’ often being a mini computer they can cost up to £600. Missing service history, not having the car serviced on time or not having the car serviced at a main dealer can result in charges. Even a missing wheel lock nut can end up with a bill for £30.

So do some research, know exactly what you are signing and shop around, be realistic about annual mileage … and take care of the car!