During the economic downturn, there was a significant period of time in which seeing a brand new car straight off the forecourt could have been seen as a novelty. Oftentimes people looked out for brand new cars on the roads, just to take a look and see what new treats loomed on the horizon of hope. In more recent times however amidst Ireland’s continuing recovery it is becoming more and more common to see brand new cars on the roads, particularly since the licence plates are now split into two halves of the year and it is easier to distinguish the latest models. This might lead us to believe that there is more disposable income available to workers, but the reality may be quite different.
Personal Contract Purchase (PCP) finance has fast become one of the most popular methods of car financing available in Ireland. PCP is an increasingly popular method of car finance due to the low repayments offered. Utilising a perceived expected residual value at the end of the term to reduce monthly payments, it seems a much cheaper and easier option for many car buyers. Many dealers also offer the option to upgrade to a new car at the end of the term using the expected value left on the previous, making this a popular option for anyone hoping to upgrade on a regular basis without having to empty their pockets on the spot.
Recently, The Society of the Irish Motor Industry (SIMI) has commissioned a report on PCP finance to be completed by Grant Thornton. In the US defaulting on these types of loans has spiked in recent years and there is a fear that falling into the same traps could have serious negative results for the Irish car market. This fear is expounded by the fact that PCP finance is done through car dealers and not through the usual financial avenues. There are no specific regulations for PCP finance in Ireland and this increases the worry around this product, and it is often left in the hands of either dealer or borrower to ensure that all parties are fully informed. Naturally, seeing a brand new car at a low monthly cost can often cloud judgement, sometimes leaving buyers in more debt than the car was worth. This lack of regulation is troubling for both buyers and dealers as Fianna Fáil finance spokesman Michael McGrath recently stated:
“As of now, nobody in the CCPC [the Competition and Consumer Protection Commission], Central Bank or Department of Finance knows how many PCPs exist and, crucially, how many customers are defaulting.”
As with all industries there is the fear that a lack of regulations may lead to a serious slip in standards. PCP is obviously an attractive option for those wishing to stay abreast of the latest models and stay loyal to one manufacturer, but with so much uncertainty plaguing the ideologies of this finance option there can be no guarantees. Our advice is to ensure that you have all of the information available and if in doubt get a second opinion on the deal you are being offered to ensure that the payments are feasible and you will not be left struggling.
Should you require any help, guidance or assistance on any business or financial matters please don’t hesitate to contact us here at EcovisDCA where we will be delighted to help.
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