The downturn of Personal Contract Purchase (PCP)

The Financial Conduct Authority has recently published a Motor Finance Review and its results are what many people in the industry had predicted.

The results show that consumers have been overcharged an estimate of £300m annually by dealerships driving up interest payments on PCP deals to gain higher commissions.

The reason this is possible is because PCP deals are simply not transparent enough for the average customer to fully understand.

With the fact that 90% of all new cars sold through dealerships are on a PCP deal – claims firms are looking at the potential scandal coming their way which could be as big as PPI. A customer can find themselves in negative equity at the end of a PCP agreement with a massive balloon payment to pay.

This is the reason why more customers are turning towards leasing vehicles via PCH. This gives them the freedom to drive a brand new car every few years, paying a fixed monthly fee, without the hassle of a big balloon payment at the end of the deal.

HMRC have recently decided that PCP payments made monthly will now require VAT to be charged on them. Research has shown that customers will save an average of £4400 on a lease deal when compared to a PCP deal for the same car.

It iswell known that car dealerships run as a business – they sell products to their customers for commission and profit. What is not well known is the fees that may be hidden in a PCP deal, such as inflated interest rates and payments. In this scenario, the dealership is looking after themselves first rather than looking after the customer.

This remains only one of the reasons why more and more people are considering leasing vehicles. The days of balloon payments and negative equity are coming to an end. Buying a car is outdated, leasing is the future.