PCP, or Personal Contract Purchase, loans have been a staple of new car purchases for some time now. They tend to reduce the cost of monthly repayments on a car by guaranteeing the future used value and working out the loan on the cost of the car minus that value. So why wouldn't the same thing work for used cars?
Bank of Ireland certainly thinks it could and has just introduced Ireland's first ever second hand PCP loan.
Pat Creed, Managing Director, Bank of Ireland Finance, said: "Conditions in the motor industry have been very challenging since 2007 when new car sales decreased from 152,830 to 74,300 in 2013. Consumers postponed the purchase of a new car, which in turn led to a much older car pool in Ireland. It also means that the cost of purchasing a new car is now much greater with less equity in the older trade in.
"However, Bank of Ireland's range of products - including PCP and low rate subsidised offers - are helping customers get their new car with affordable repayments and rates from as low as 0% APR."
"With more than twice as many 142 cars registered on the first day of the new registration plate compared with the same day last year, it is evident that a significant number of consumers are returning to the market. The growth in the popularity of PCP and low APR rates has been such that over 71 per cent of all new cars purchased by consumers are now selecting these forms of payments. We are seeing very strong approval rates for PCP and low APR rates, with 90 per cent of applications being approved for finance."
"2014 is proving to be the best year for new car sales since 2008 and looks set to achieve sales of 90,000 vehicles by year end. This strong performance, whilst coming from a low base, tends to be a lead indicator and reflective of the re-emergence of consumer and business confidence. This is the second year of the dual registration plate, which has also helped change the traditional seasonality where vehicle purchases would be frontloaded in the first quarter. This has ensured that there is a more steady flow of business throughout the summer months, which historically would not have happened prior to the 132 plate launch last year."
"Another impact of the recession was the shortage of used cars for the industry to sell, which has resulted in a significant number of cars being imported to supply the demand. It is estimated that the importation of second hand cars will reach 50,000 by the end of this year. The growing popularity of PCP will now ensure that there is a strong supply of good three-year-old second hand cars coming back to the market on an ongoing basis."
"Interestingly, we are seeing a slightly younger customer profile on our PCP deals. Industry research supports this as it shows that younger customers prefer the lower monthly payment and are also very used to the 'tariff' type concept where they pay for the use of an item and upgrade, as with their mobile phones."
Anything else?
As always with any financial product, we'd advise you to be very careful and read the small print before jumping in here. Make sure you can afford the repayments and be very clear on how the turnover of the car at the end of the loan will take place - for instance, whether or not you can use the remaining value in the car as a deposit on your next purchase.