Car loan or PCP? How should you fund your 2018 car purchase?

Asian car driver woman smiling showing new car keys and car. Mixed-race Asian and Caucasian girl.

Consumers in Ireland are changing their cars more frequently than before and this trend is set to continue in 2018. The latest Carzone Motoring Report (2017) says that one in two people now change their car every five years, and 60% are planning on buying either a new or used car in 2018. With so many set on a new pair of wheels in the coming months, it’s likely that a lot will struggle to decide between a traditional car loan and a Personal Contract Plan (PCP) to help finance the purchase.

For many, headline rates on 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 PCPs are lease schemes. The buyer has in effect, hired the car for a particular period of time, usually 3-5 years, while they make payments. At the end of the agreement, they will have to make a balloon payment in order to own the car.

In addition, they will need to be conscious of the mileage they are racking up, because the balloon payment, or guaranteed minimum future value (GMFV), of the car will have been calculated with their annual mileage in mind.

In contrast, with a car loan, the consumer simply borrows the money to pay for a car, which they own immediately, and they can drive as much as they please. They can also sell the car on at any time they wish, should they need to, whereas they do not have this option with a PCP.

Listowel Credit Union is reporting a recent increase in queries about car loans, which could be down to weaker sterling fuelling the increase in cheaper used car imports from the UK, along with media coverage of the inflexible nature of PCPs.

There appears to be a renewed interest in the traditional car loan due to greater flexibility and more straightforward terms and conditions. Denis Dillane, CEO of Listowel Credit Union said: “We would encourage anyone considering buying a new or used car in 2018 to pop in or call us at Listowel 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.”

Speaking in more detail about the differences between car loans and PCPs, Denis said: “If you arrange finance with your credit union before going shopping for a car, you are in a much stronger position. You are effectively going as a cash buyer to the car dealer, and may well be able to negotiate a better deal. At Listowel Credit Union we offer a car loan with an APR rate of 6.98%* and we also offer car insurance, through the credit union insurance website Our loan is typically approved within 2 days.”

Listowel Credit Union has also put together a checklist for anyone considering a PCP agreement before they sign the dotted line:

– Be aware that to extend the term of a PCP you may be charged a rescheduling fee.

– Take note of the cap on the number of miles/kilometres you are allowed to clock up over the period of the contract.

– You may be requested to commit to certain car servicing agreements.

– Ensure you always enquire about additional fees and charges, you are entitled to a list of all additional charges so ask the garage for this before you sign any agreement.

For more information on PCP’s and how they work check out

*For a €10,000, 5 year variable interest rate loan with 260 weekly repayments of €45.32, an interest Rate of 6.75%, a representative APR of 6.98%, the total amount payable by the member is €11,782.41.

Loans are subject to approval. Lending criteria, terms and conditions apply. Listowel Credit Union Limited is regulated by the Central Bank of Ireland.