Deciding on PCP or Credit Union…
Q. I am buying a new car and its costing € 26,245. I have the 30% – € 7,873 and the repayments will be € 207.69 for the next 3 years. If I go the PCP route, I will have to pay on maturity at least € 11,810 – the Guaranteed Minimum Future Value (GMFV) Should I go to the credit union, and take out a loan for the full amount ( 70% ) which would cost me nearly c. € 320 more per month or should I just fire ahead and choose an option in 3 years’ time ? Thanks Paul – Thomastown Co Kilkenny
A. You now know Paul that the car will depreciate by 55% after 3 years as the GMFV testifies. The car is the worst depreciating asset you can buy today. With the Personal Contract Plan (PCP) you have 3 choices after your last payment is made : firstly pay that GMFV with your savings if you can. Secondly use the equity in the car as your deposit to exchange your car for a new one. Thirdly hand the car back and start using public transport ! It is important to know at the start of your purchase what the GMFV is as this will determine your strategy for the next three years. The best route is to save, if you can, in a type of sinking fund so that when that bullet payment is required on maturity, you have it. Then you can decide whether to keep the 3 year old debt-free car or upgrade it. The alternative is to have a forever car loan that’s never paid off or take that credit union loan for the full balance of the car purchase. The latter while eating more into your cashflow would be a better option but only if you can afford it and you have budgeted for the monthly repayment.
Happy motoring.