PCP Car Finance - Will it all end like the I/O Mortgage?

Pinsters, I’ve been looking into buying a new car these past few months, lured in by the stupidly low monthly repayments on some pretty swanky motors. I went as far as to take a few test drives and came very close to buying a ‘161 demo model’ back in March.

The more I engaged with the sales people, the more concerned I became however. So basically, I put a down payment on the car and make a minimal monthly repayment (plus interest) that does not even match the notional monthly depreciation charge. I pay interest only on the ‘guaranteed minimum value’ of the car and when I go to trade it in 3 years down the road, I hope that there is equity in it above and beyond the guaranteed value so I have a deposit on my next car.

I have asked the question; “what happens if depreciation is greater than expected and the car is not worth the guaranteed value”? The answer I invariable get is; “just hand the keys back and walk away”. The garage is the entity that provides the guarantee if I understand it correctly. What if the garage does not have the financial capacity to buy back a bunch of cars at a loss in 2-3 years time? Sterling is down 10% versus the Euro post Brexit and it could potentially fall a lot further. This could easily lead to a collapse in the value of second hand cars in Ireland (because of cheap imports from the UK flooding the market).

I admit that I did not get far enough into the process to see the contracts. A bank underwrites the loan (usually BOI), so what powers does the bank have if the garage cannot buy back the car? Presumably they can demand repayment of the residual debt?

This all sounds very like an interest only mortgage to me and will probably end the same way. Taking on tens of thousands of Euro of term debt and speculating on the future value of a depreciating asset… What could possibly go wrong? 8DD

It’s your own little version of QE, if you take one of the 0% loans and you actually have the cash to buy outright.

Stick the balloon and lump that would be total monthly deposit in a deposit. Yield v the 0% loan and it’s QE for the little man!

But, yes, it will all end in tears.

Nice bit of arbitrage there

I’m curious about PCP myself. You don’t actually own the car unless you pay the balloon payment. So why would vagaries in the exchange rate or second hand market bother you.

I’ve only discussed it in passing with people. Some people seem to swear by PCP. They seem to have released themselves from the need to “own” the car they’re driving.

Can one (at any reasonable price) lease cars in Ireland long term for personal use?

If I had a higher income I would be happy to pick a car out of a catalogue every two years and not have to deal with the hassle of taxing, NCT, trade-ins, servicing, finance.

A friend worked in the area years ago and said the VAT made it prohibitive

Surely it’s the car banks - Volkswagen et al giving the really low rates. The reason being to make sales. So even though the bank element isn’t making much the car sales element is coining it.

I’d imagine BOI etc are behind the other rates of 5pc plus you see quoted.

You talk about sterling value and uk cars but they are second hand - people using pcp are buying new ones and will likely continue to do so.

And the average jo either isn’t bothered crossing the border to import/ doesn’t trust the car not to be clocked.

You make good point re if everyone handed cars back but most likely the bank will just inflate the GMV a bit to ensure this doesn’t happen.

We saw what happened in 08/09; tens of thousands of leased cars were repossessed. There was a glut of used cars and commercial vans for a while. They were sold off cheaply. There is nothing here which will undermine the economy in the long term and nothing which will require the support of the Government at the expense of the future generations. The loans are spread out more amongst the financial arms of the Manufacturers.

What you will find is that are three or four years people will reach the end of their PCP terms and not be able to pay the balloon payment or have enough to enter another PCP payment and they’ll be stuck.

if you want to see it done properly then visit sixt-neuwagen.de. or .de e.g. fiat.de

German rates of 0% for PCPs are rare in Ireland.

Outside of VW and BMW, BOI underwrite almost every PCP contract. They make 6.9% regardless of what the dealership charges. Often the dealer subsidises the rate from their margin on the car.

My point about second hand cars is for when you go to trade in your PCP financed car in 3 years time. If people can buy the same car much cheaper in the UK, the price falls here too. This is already happening with the weak GBP relative to EUR

You pay the first three years of depreciation as you would any new car. You wouldn’t really go over the guaranteed future minimum value unless you go over the mileage allowances which have penalties built in to cover the garage. The risk is well thought out from the garages end.

Basically if you’re the type of person that used to change your car every three years, it’s a good deal for you to keep doing that as the finance is low apr. if you’re the type of person that buys used cars, this is a trick to make new cars seem attractive to you and suck you into the former group.

Put simply, look at the monthly price for a 10% deposit rather than the sample in the advertising, add petrol tax insurance and running costs, and then think about that being in your monthly budget under the heading car for the next the 9 years while you roll these over. The second your stop doing it you’ll have no car and maybe even lose a few k of your original deposit tied up in what it’s worth.

On the flip side, it’s cheap money if you can commit to buying the car with the balloon payment, but why not buy a good 3 year old car now instead?

There’s also the flawed assumption that credit will always be cheap. Might not be the case when time to roll at the end of term. Lender may also not want to roll if there’s a deterioration in its book.

The aim is to get you hooked to one car maker long term.


It’s hit liquidity in the private second hand car market very hard because people are opting for PCP on a new (or nearly new) car and not purchasing a private used.

The long term risks are not with the buyer, who’s exposure is clearly limited; probably more to the car companies who are possibly over supplying a market that could turn on them pretty quickly.

Folks, don’t get distracted by the interest rate, there’s a fundamental difference here from housing market: the body selling the credit and the car are the same. Not only that the whole lot is being bundled.

You’ll find that 0% finance offers will then have less room for discounting, or tougher prices on your trade in. You’ve got to look at total price: nominal , trade-in/scrappage, discounts, credit etc., also pay attention to delivery prices, pre sale check prices, metallic paint premium etc! Also, note some scrappage deals dont require the “scrapped” car to be sacrificed. Various anecdotes of folk bringing in scrappage cars of age and being asked if they’ll take it away again . lots of this stuff is smoke and mirrors.

RE PCP, there are a share of people (cf boards.IE) really not getting it and confusing the situation at the end regarding balloon payments, guaranteed value equity etc.,

What’s for sure is there’ll be plenty of used cars in 3 yrs time!

There’s no such thing as a free lunch.

The main issue with HP/PCP is that the combination of deposit+balloon payment masks the depreciation allowing them to advertise a low monthly cost.

My cars are about 10 years old. The Japanese one is ultra-reliable, if a bit scruffy, so the argument about buying a new car for reliability is nonsense.

I stopped buying fancy cars when I moved to Ireland as the VRT makes them effectively a luxury good and the overall tax hit is enormous. Also, don’t really like positional goods.

Highly addictive and bad for one’s health, a very appropriate abbreviation, I would think. :imp:


Ok, so now the behaviour of the public during the CT years starts to make some sense. :laughing:

There’s a British bank called Close Brothers that do 3.9% rates for some manufacturers, BOI are generally more expensive.

If Sterling stays low than UK prices are going up.

If you drive a banger anyway, there’s nothing here to change your mind. But if you’re the kind of person who tends to drive a newer car, then PCP is a no brainer in comparison to a bank/credit union car loan, or even buying for cash. If you go with VW, then it really is like an interest free loan on the first 3 years of depreciation. You also get the benefit of a fixed monthly payment, no dicking about with nct’s and if you haggle you can get a deal on servicing too.

They are steep enough as things stand (in London at least!)
(sorry thought we were referring to general prices - know nothing about car prices)

I’m not saying you’re wrong, but I find it hard to believe. If you can get 0% finance then you can also negotiate a steep discount with cash.

Problem being a flood of 2nd hand cars from the UK means the arse falls out of the 2nd hand market here, so you might have gteed min value but that removes your equity from the next purchase which is “supposed” to be built into the PCP contract. So you end up having paid over maybe 20% of the cars value day 1, made 3 years of payments, and then either buy out the car at minimum gteed value or else hand it back with no trade in for next purchase.

I think its a daft scheme…