Why a credit union car loan is better than a PCP for 2019

Close to four in ten consumers in Ireland will buy a new car in 2019. Over half plan to spend more than €10,000 on their new set of wheels, according to the most recent Carzone Motoring Report (2018). The study also found that one in four consumers who spent between €10,000 and €20,000 on their previous car, used a credit union car loan to fund the purchase.*

Credit union loans have always been popular amongst car buyers for their straightforward terms and conditions and flexibility, and look set to be a top choice again in 2019. Indeed, credit unions, such as St. Columba’s Credit Union, are reporting an increase in car loan queries from their members.

Michael Duffy, Chairman of St. Columba’s Credit Union explains why he/she feels there has been a renewed interest in the traditional car loan.  “A credit union loan is transparent and carries no hidden fees or charges. The buyer owns the car outright once they buy it, while with other more complex finance options, such as a PCP agreement, the buyer has effectively hired the car for a period of time while they make payments. At the end of the PCP agreement, they will have to make a balloon payment in order to actually own the car, which can prove to be quite the financial sting in the tail if it hasn’t been budgeted for.”

The Carzone report however also found that 72% of people who had spent more than €20,000 on their last car had used a finance options such as a PCP agreement. So while PCPs can be complicated, have a raft of additional charges and a good deal of inflexibility, they are proving popular with car-buyers in the over €20,000 market. Could this be down to the fact that a lot of consumers don’t fully understand what they are signing up to with a PCP?

For many people, headline rates on PCP agreements can at first look more attractive, but these can easily distract from the fact that essentially PCPs are lease schemes and the buyer will need to be conscious of the mileage they are racking up, because the balloon payment, or guaranteed minimum future value (GMFV), of the car will have been calculated with their annual mileage in mind” Michael explains.

“In contrast, with a car loan from the credit union, the buyer simply borrows the money to pay for a car, which they own immediately, and which they can drive as much as they please. They can also sell the car on at any time they wish, should they need to, whereas they do not have this option with a PCP. Credit unions are ethical lenders. We will work with our members to structure repayments that suit their individual circumstances. At St. Columba’s Credit Union our car loan is available at an affordable APR rate of 7.7%**, and is typically approved within a few days. I would really encourage anyone thinking about going the PCP route to have a chat with us first at St. Columba’s Credit Union before making the final decision. We are happy to see all our members, no matter how long it has been since they did business with the credit union, and of course we are always happy to chat to anyone who has never been a credit union member.”

Michael also says potential buyers should familiarise themselves with the below checklist before signing the dotted line on a PCP agreement:

  • Be aware that to extend the term of a PCP you may be charged a rescheduling fee.
  • Take note of the cap on the number of miles/kilometres you are allowed to clock up over the period of the contract.
  • You may be requested to commit to certain car servicing agreements.
  • Ensure you always enquire about additional fees and charges, you are entitled to a list of all additional charges so ask the garage for this before you sign any agreement.

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*Carzone Motoring Report 2018

** For a €10,000 5year variable interest rate loan with 60 monthly repayments of €200.38, an interest Rate of 7.5%, a representative APR of 7.7%, the total amount payable by the member is €12,021.16. Information correct as at 21/12/18.

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