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What is the future of PCP?

Doubts are beginning to emerge about the longevity of Personal Contract Purchase (PCP) as a cheap way of enjoying a new car for the foreseeable future.

The Finance & Leasing Association have stated that 74.2% of new car purchases in 2015 were funded using credit and the majority were bought on PCP deals, such has been the recent popularity of this method of buying a new car. Customers have enjoyed low deposits with equally low monthly repayments until now. However, a number of concerns are now being raised about the relative complexity and uncertainty surrounding PCP.

One area of concern is in connection with Guaranteed Minimum Future Values(GMFV). The GMFV is the minimum amount the car will be worth at the end of the contract period. If the car drops in value the consumer is protected and if the car happens to be worth more then you can use the equity in the vehicle as a deposit in your next PCP deal.

A lot of consumers believe that the GMFV has been set to allow the buyer to create equity in the car which they can use as a deposit on their next deal but, in reality, GMFVs are being found to have been set close to the actual value of the car which leaves the customer having to find the deposit for its replacement and suffering an increase in the true cost of converting to PCP.

In addition, because of the huge switch to acquiring a new car by many who previously would have bought from the used car market, the number of used car vehicles and the number of used car buyers has swung to such an extent that the resulting imbalance will see prices of used car stock having to fall as stocks soar as PCP deals come to an end. This will force GMFVs to increase and, therefore, the cost of a PCP deal in the future as the honeymoon period comes to an end. It could also mean disaster for a lot of independent used car dealers who may not survive as a result of manufacturer subsidised PCP deals. What happens at the end of the contract if there are no independent dealers buying these end-of-contract cars because there are no customers for them because they are all buying new cars under PCP? The question has to be asked: what is the future of PCP and, indeed, the used car market?

Bira Bank are doing everything they can to compete through low cost finance deals with no deposits required. We provide traditional Hire Purchase finance to members which means you are buying the asset whether new or used. With the costs of each method of finance expected to converge, is it not best to have something to show for the money you have paid?