Thinking of buying a new car in the coming months? Then you’ve no doubt heard about Hire Purchase (HP) and Personal Contract Plans (PCPs) when researching your car finance options. These motor finance agreements have grown in popularity, with PCPs becoming particularly widespread according to the Financial Conduct Authority (FCA). It estimates that PCPs accounted for around 66% of the value of new and used car lending in 2017. This compares with 34% in 2008.

There is concern however about these types of point-of-sale agreements. The FCA is currently investigating HPs and PCPs and, recently released an update on their study. This raises concerns that that not all consumers fully understand what they might be signing up for. In some cases, the report says relevant information is spread across multiple documents which may make it difficult for consumers to absorb key information. The FCA has not yet investigated whether consumers’ ability to repay is being adequately assessed - but intends to do so in the coming months.*

Speaking about motor finance agreements Bannvale Credit Union said “For many, headline rates on HP or PCP agreements can at first look more attractive, but these can easily distract from the range of additional charges and a good deal of inflexibility. Essentially these finance options are lease schemes. The buyer has in effect, hired the car for a particular period of time while they make payments. There are other issues to take into consideration also, such as the balloon payment at the end of a PCP agreement which has to be paid before the consumer can own the car outright. With a traditional car loan, the person simply borrows the money to pay for a car, which they own immediately. They can also sell the car on at any time they wish, should they need to, whereas they do not have this option with these lease agreements.”

There is further detail in the ‘small print’ of motor finance agreement which consumers should be aware of. With a PCP for example, they will need to be conscious of the mileage they are clocking up. This is because the balloon payment at the end of the agreement will have been calculated with their annual mileage in mind. If on the other hand a consumer takes out a car loan before purchasing a car, they are effectively going as a cash buyer to the car dealer and are in a far better position to negotiate a deal.

At Bannvale Credit Union we offer a car loan with an APR rate of 7.9%** which is typically approved within 2 days. There are no hidden fees or administration charges with our loan, and we are always happy to work with our members to arrange repayments in a way that best suits their individual circumstances. We would really encourage anyone thinking of buying a new or used car in the coming weeks to contact us at Bannvale Credit Union before making any decisions. We are happy to see all our members, no matter how long it has been, and of course we are always happy to chat to anyone who has never been a credit union member.”

*FCA; Our Work on Motor Finance – Update. March 2018

** For a £7,500,  4 years variable interest rate loan with 47 monthly repayments of £181.84, an interest Rate of 7.62%, a representative APR of 7.9%, the total amount payable by the member is £ £8728.18, information correct as at 03/05/2018


For further information, please contact us on (028) 2582 1001