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The monthly payment amount is determined by the amount of the initial payment (the ‘deposit’), which can be negotiated with the financing company, and the final balloon payment, which is set by the financing company. The financing company is likely to be represented in this discussion by either a car
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The customer is the registered keeper and legal owner of the vehicle, whilst the finance company retains an interest in the vehicle. This interest will be noted in the car’s history whenever anyone checks it, so that the car cannot be sold without clearing the finance first. If the owner defaults on
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In July 2017, the
Competition and Consumer Protection Commission (CCPC) commenced a study into PCP car finance market. This followed a study by Motorcheck which revealed Ireland's new vehicle market was heavily dependent on PCP agreements. The study found 73,979 new vehicles were sold on finance in
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It may be agreed instead that the final balloon payment is compulsory within the terms of the contract, but that the owner then retains a right to hand the vehicle back to the financing company at the previously agreed figure (GMFV) in lieu of the balloon payment. It is necessary to fully understand
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The final payment, which initiates the actual transfer of ownership, is calculated by the financing company at the start of the agreement based on its estimates of the future residual value of the vehicle (Guaranteed
Minimum Future Value, or GMFV). This final payment is called the balloon payment,
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Unlike a traditional hire purchase, where the customer repays the total debt in equal monthly instalments over the term of the agreement, a PCP is structured so that the customer pays a lower monthly amount over the contract period (usually somewhere between 24 and 48 months), leaving a final
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the payments, the finance company may have the legal right to repossess the vehicle. At the end of the agreement, the customer either pays the balloon payment and takes clear title of the vehicle, or the vehicle may be returned to the finance company without any further liability.
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This form of contract purchase was originally used more by businesses than individuals, but there has been steadily increasing use by consumers in countries such as the UK in recent years. In 2016, 82% of personal new car finance deals in the UK were PCPs.
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these aspects of a personal contract purchase before signing any deal as a loss may be incurred at this point. This option, but not the obligation, to acquire the car after a period equivalent to a contract hire is therefore packaged as either an
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A PCP may include the element of maintenance during the duration of the contract though this is in the minority of cases. In the UK, the majority of PCP deals include the payment of the first year's
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PCP car sales have come under heavy scrutiny in
Ireland since 2014 as customers felt not enough effort was made to ensure they had full knowledge of all details within the PCP agreement.
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to purchase the car (a call option) at a 'set' price, or a right to sell the car (a 'put' option) at a set price after ownership is fully achieved from the final ‘balloon’ payment.
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to be made at the end of the agreement. The total borrowing is the same in both cases, and interest is payable on the entire amount (including the balloon payment on the PCP).
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the interest charges are applied to the net-of-VAT cost price i.e. a car would be without the VAT, giving substantial savings on interest charges
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At the commencement of the agreement, the balloon payment is planned to be less than the value of the vehicle at the end of the term, creating
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Unlike
Personal Contract Hire, the leasing company can reclaim the VAT, and this means that the monthly payment would be less because:
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VAT is applicable on the entire vehicle price and is capitalised into the monthly payment when calculating the PCP monthly payment.
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A personal contract purchase is therefore a conditional sale agreement, and under UK law the purchaser is protected under the
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on the car is based on the net-of-VAT cost price, immediately saving the customer a significant amount of depreciation.
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and is usually taken as a direct debit unless the customer takes an alternative course of action prior to this time.
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that may be used as a deposit on another vehicle purchase (this does not always occur).
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In a personal contract hire, the lessee pays VAT on the monthly payment.
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Arbitration Scheme in the UK, used if there is a subsequent dispute.
371:"Why more people will opt for PCPs - but we should learn from probe"
324:"Car Financing - Car Loans and Leases Explained - by LeaseGuide.com"
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vehicle finance for individual purchasers, similar to both personal
238:"What is PCP car finance? The Personal Contract Purchase explained"
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deal primarily with the United
Kingdom and do not represent a
18:
139:, but subsequent renewals will be at the customer's expense.
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and a traditional hire purchase (buying on installments).
397:"Competition watchdog to examine PCP car finance market"
43:
212:(SIMI) commissioned a report on PCPs, carried out by
423:"Over half of new cars sold under finance deals"
288:"Personal Contract Hire: What to Be Aware Of"
127:and the Financial Services Regulations 2004.
32:The examples and perspective in this article
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220:Ireland in 2016, a 139% increase from 2014.
339:"Car finance deals: Do they spell trouble?"
70:Learn how and when to remove this message
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160:dealer or automotive finance broker.
7:
216:, in an attempt to benchmark PCPs.
240:– via www.thecarexpert.co.uk.
210:Society of the Irish Motor Industry
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337:Milligan, Brian (21 April 2017).
174:Finance & Leasing Association
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1:
236:Masson, Stuart (8 May 2016).
270:"Tax your vehicle - GOV.UK"
46:, discuss the issue on the
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341:– via www.bbc.co.uk.
89:), often referred to as a
83:Personal contract purchase
306:"Vehicle funding - BVRLA"
252:"Office of Fair Trading"
125:Consumer Credit Act 1974
353:"UK Government Portal"
292:www.insmallprint.co.uk
91:personal contract plan
52:create a new article
44:improve this article
137:Vehicle Excise Duty
375:Irish Independent
274:www.direct.gov.uk
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377:. 23 August 2017
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427:Irish Examiner
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403:. 17 July 2017
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359:on 2010-11-25.
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326:. 23 May 2017.
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258:on 2010-06-10.
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433:6 September
407:6 September
381:6 September
172:There is a
448:Categories
224:References
60:July 2017
48:talk page
401:RTÉ News
42:You may
459:Renting
201:Ireland
114:equity
50:, or
435:2017
409:2017
383:2017
208:The
189:the
87:PCP
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