Your guide to Car Finance by Peugeot Ireland
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When it comes to buying a new car Irish customers have loads of finance options available to them but i want to hone in on just two of them; Hire purchase and Personal Contract Plan also known as PCP. Before I get into it, I want you to think about how you paid for your last weekly grocery shop did you use cash or maybe a credit card, did you use a debit card and did that come out of your own personal account or do you have a joint account that used to pay all the bills whatever the answer is I'm sure you use the one that suited you at that particular time and just because it suits you doesn't mean that that method would have suited somebody else, I think we can probably all agree on that.
Well when it comes to financing a car it's the very same story. There is no one solution that suits everybody equally. In a nutshell hire purchase is exactly as it sounds, you hire the car first with a view to purchasing it. It works by putting a deposit down on day one that can be anything you like. Say a deposit from here on the new retail price -let's say here that amount of car and your finance from here all the way to the very end and you do that over and agreed 12 months, 24 months, 36 months -you get the idea. Your repayments are linked to an interest rate and the amount that you've borrowed over the agreed period that you want to pay back until you reach the very last payment and hey presto you've just purchased yourself a lovely car.
You hired it for a few years at the end of it you bought it and that is essentially hire Purchase. The main takeaway from hire purchase is that once you've paid your deposit you finance the entire outstanding balance of the car and for that reason hire-purchase tends to favour people who know from day one that they ultimately want to own the vehicle at the end of the loan agreement. PCP can work similarly but there are other options, let me explain.
Right first things first just as hire-purchase does a great job at explaining itself in its title, PCP is equally as descriptive. It stands for personal contract plan. I want to focus on the first ‘P’ for personal because I hear a lot of people making blanket assumptions about PCP, when the reality is it's just a finance product like any other. It either suits or it doesn't. With PCP you effectively lease the difference between a future forecasted value and a retail price minus your deposit. Now I know that sounds confusing but it really isn't you just need to know a few things.
Just like hire purchase PCP contracts start out by putting down a deposit. You can do this by either trading your car in or using cash or even a combination of both. Unlike hire-purchase where you can make the deposit as big as you like PCP is worth somewhere between ten percent and thirty percent deposits and that's all because of something called the guaranteed minimum future value or the GMFV. This has a few purposes.
One of the uses of the guaranteed minimum future value is to calculate your repayment's. The difference between the GMFV and the amount outstanding after you've paid your deposit is the amount of money that you need to borrow in order to drive the car.
Interest rates obviously apply here too. Another cornerstone of the future value is that it acts as your optional final payment at the end of your loan-term should you wish to go ahead and purchase the vehicle out right.
The future value also acts as part of the equation that is used to derive any equity that you have
left in the car. Equity is calculated by subtracting the future value from the prevailing market
value at the end of your loan term. Any positive difference between those two values acts as a deposit for a new contract.
It is worth looking into what future residual percentage applies to the car that you're thinking about buying, in order to ensure that at least appears as though all things being equal you are likely to have a chunk of change taken to a new deal.
Who feels like we've been through a lot already but don't worry there isn't much to go i just need to sit down and talk you through that last bit when it comes to the guaranteed minimum future value because it is conditional on mileage and the condition of the car at the end of the military so make sure you do your mileage maths and then sure that it stacks up you're not going exceed this over the course of three years or however long you're taking out the loan and also when you bring it back the car has to be in reasonable condition. (car that's three years old).
This is the bit that a lot of people like to point out as a negative to PCP but the reality is that if you trade your car in with high mileage and a few scrapes it would be worth less regardless of how you finance it.
Provided the mileage and condition stacks up to the terms and conditions, another option available to you with PCP is to simply hand the car back at the end of the loan term. PCP tends to favour those who like to change their cars more regularly and also those who like to kit their cars out with a bit of extra equipment. Because instead of funding the whole value all the way back from day one, you fund the depreciation back to the future value. To expand on that last point because you're not initially financing the entire out-standing value of the car after you paid your deposit your re-payments on a PCP do tend to be lower than they do for hire purchase. I can't go into every minute little detail on hire purchase and PCP, but I hope you've taken away one thing from all of this is that there are loads of options available to you and you're the person who is best to decide which one suits you best.
But whatever you decide, make sure you're comfortable with your decision, oh and in case you're wondering this Peugeot 308SW is a lovely car to drive