As the number of car purchasers utilising loans or Personal Contract Plans (PCPs) to finance their new electric vehicle increases, the concept of a cash deal seems increasingly archaic. Therefore, acquiring knowledge about various finance packages has become indispensable. Karen Kennedy, the Customer Development and Innovation chief at Bank of Ireland, indicates that car dealerships heavily depend on PCPs as a finance method for customers to buy new cars.
Yet, the functioning of PCPs often appears enigmatic, and Kennedy emphasises the importance of buyers comprehending exactly what they’re agreeing to. She adds that while car loans remain a favoured method for vehicle purchase, hire-purchase plans also present a straightforward and efficient way to vehicle ownership.
One of the plainest and most convenient ways to finance a new electric car could be securing a personal loan from a bank or credit union. Given the present interest rates, this could likely be the priciest option in terms of monthly repayments, but it is also the most straightforward – you become the outright owner from the purchase day and you gradually repay the loan each month. Despite being costly, it is uncomplicated.
This high expense is the reason for the soaring popularity of the PCP finance package. A PCP delays a part of the car price until the finance agreement’s conclusion, and this cost is presumed to be covered by the car’s future resale value. This future value is essentially guaranteed by both the car manufacturer and the finance provider, hence its term – Guaranteed Minimum Future Value (GMFV).
PCP, or Personal Contract Purchase, typically runs for a period of three years, and is designed to ensure that the Guaranteed Minimum Future Value (GMFV) is slightly less than the actual value of the car at the end of the finance period. This surplus value represents your “equity” in the car and can be used as a deposit on a new vehicle if you choose to move onto a new finance agreement. Other alternatives include handing the vehicle back with no further commitments, or settling the GMFV and having full ownership of the car.
Brian Merrigan, BMW Ireland’s head of financial services, advocates the PCP system provided by BMW Financial Services Ireland as a “wise option”. BMW Group sufficiently secures the projected future worth of the car, allaying any customer concerns about a potential decrease in used car rates. The advantage is that customers are able to keep any extra equity, while any negative equity is covered by BMW Financial Services.
Over the past 15 years, BMW Financial Services Ireland has offered PCP as a way to finance a new or used BMW or Mini. The vast majority of customers have been successful in trading in these vehicles, utilising part exchange and financing their subsequent vehicle, maintaining some level of accrued equity. Some customers have chosen to keep their cars after the PCP agreement has ended. These customers are often offered the option to spread the final GMFV payment over another two or three years, eventually fully paying off and owning the vehicle.
According to Emma Toner, Marketing Director for Opel Ireland, purchasing a new electric vehicle through a PCP or HP deal has substantial appeal. With most motor distributors and franchise dealerships in Ireland offering appealing, subsidised finance rates, monthly repayments for customers can be significantly reduced.
Opel presently extends an enticing zero per cent contract to hire rate or a 2.9 per cent PCP rate, proving very beneficial to customers especially as interest rates on finance have shot up in the last few years. The lower rates under the subsidy scheme considerably reduce the interest over the contract duration compared to a conventional personal loan which could save clients a great deal in repayments.
Audi also provides diverse financing options. These include the PCP agreement which is available to individual and corporate clients that guarantees a uniform monthly repayment during the contract and a GMFV on the vehicle at the contract’s conclusion. Audi also offers hire purchase for EVs which is designed to help clients make the most out of their budget. The scheme showcases flexible periods ranging from one to five years with fixed interest rates and instalments.
However, PCP contracts bear a level of risk as they essentially place a wager against the automobile market three years in advance. This has been problematic for some EV owners in the past year, due to the erratic values of second-hand EVs caused partly by new EV price reductions, and partly due to the wider used car market’s hesitancy towards the technology. This has resulted in lower second-hand EV prices which have, in some instances, depleted the “equity” of the vehicle, putting some owners in a financial bind at the time of trade-in.
From this perspective, the hire purchase where one pays regularly every month and owns the vehicle outright at the end of the loan period, seems an ideal choice for EV purchases. This allows the owner to keep the car for a longer period and endure the instability of the used EV market.
The values of used EVs are expected to rise given that the sale of used electric cars is still limited but continues to grow. Wise car buyers have realized the feasibility of low second-hand EV prices and have started to seize the opportunity to purchase EVs. This is definitely encouraging for second-hand buyers. As the trend catches on, the increased demand for used EVs will likely drive prices up. Therefore, a relatively new EV with a sizeable chunk of its battery warranty remaining and low mileage is quite the steal at present.