Buying a car in 2020? Do the homework first

SIMI Director General Brian Cooke confirms that it’s been a disappointing year for the industry.

“For the second consecutive year, used car imports have exceeded 100,000, which is having a dampening impact on new car sales. With the 201 registration plate on the horizon, focus has already turned to January. With generous incentives for customers to buy a new car across all brands and across all market segments, members are hopeful for the busy start to 2020.”

If you’re thinking of splashing out on new or second hand wheels in 2020, take the time to familiarise yourself with the various car finance options, and make sure to run a number of checks before you commit.

Research PCP model

Number one, make sure you understand PCP. This stands for Personal Contract Plan, or Personal Contract Purchase. This is a form of credit agreement, one which has come to underpin private car buying in Ireland.

The big attraction of PCP finance is that it uses the residual value of the car to reduce the amount borrowed, thereby keeping the monthly payments low.

Under a PCP, repayment is broken into three parts. The first is the deposit, which is typically between 10% and 30% of the value of the car. This can be paid in cash, or you can sometimes trade in your old car for part or all of the deposit, depending on its value.

Next you have the monthly repayments, which are usually spread over three to five years. It’s these repayments that act as the greatest incentive to get involved in a PCP because they tend to be low, certainly in comparison with other forms of finance.

The third and final payment is called the Guaranteed Minimum Future Value (GMFV), and this is the balancing payment that you pay to own the car at the end of the agreement. As the name suggests, this figure is based on the finance company’s estimate of the future value of the car at that point. It will depend on the type of car, the length of agreement and your annual mileage.

When the agreement ends, you have three choices. You can pay the final payment and hold on to the car. Note that because of how the agreement is structured, it’s possible that you end up paying more than the current value of the car, depending on how the market for second hand cars has moved over the course of the term.

You can hand back the car and make no further payments. You don’t owe anything, but likewise you no longer have the car.

Information on trading up

As the Competition and Consumer Protection Commission (CCPC) points out, the other option is to trade in the car for a new one and enter a new PCP agreement. You may also have built up some equity from your previous PCP agreement that you can bring into a new plan as a deposit. This depends on what the dealer determines the current market value of the car to be at the end of the agreement.

Again note the distinction here. We’re talking about the current value of the car, which may not be the same as the GMFV you agreed to at the start of the agreement. Therefore, if the value of the car has dropped, you may need to pay more money to the dealer to enter the new agreement.

Remember too that you may have to stump up additional payments at the end of any PCP arrangement if you haven’t complied with the terms and conditions.

These can be quite exacting. For one thing, you agree a set number of kilometres you will clock up over the life of the PCP. Exceed that number and you could find yourself paying more than the agreed GMFV. You may also have to commit to a servicing schedule; always check the small print for conditions like these before you sign.

Alternative finance options

Remember too that there are other ways to finance the purchase of a car, including personal loans, hire purchase or cash and savings.

The next thing to check out is the car itself. As the CCPC points out, unless you know a lot about cars, you should get it independently vetted by a mechanic. The consumer watchdog has a great car buyer’s checklist to guide you here. It will also help you keep track and compare different cars easily.

Ask for a warranty

If you are buying from a dealer, they should offer some form of warranty for the car. If the car is reasonably new and the dealer is not willing to offer a guarantee, listen to those alarm bells.

It’s vital to check the car’s history. Despite how perfect your prospective new wheels may appear, it’s almost impossible to know whether or not it has any dark secrets unless you get its history checked out.

Background checks

There are a number of companies who will run a variety of background checks for you for a small fee. They will be able to tell you if the car was ever written-off, and will give you a firm indication of the true mileage of the car, which can help you to work out if the car has been clocked.

Clocking means changing the genuine odometer reading of the car in order to make it seem like it has been driven less than it actually has. Spotting a car that has been clocked can be tricky.

Average annual mileage

The average annual mileage of a privately owned petrol car in Ireland is about 17,000 kilometres (10,500 miles). Diesel cars, especially if they have been used for business purposes, could have a higher average of about 24,000 kilometres (15,000 miles). A mismatch between the mileage and the wear and tear on the car is a telltale sign of clocking.

Take a look at the seat covers, pedal rubbers, gear knob and steering wheel. If these show signs of heavy use but the odometer does not, there may be an issue. Check the car’s documented history and have it looked at by a mechanic to be on the safe side.

History check

A history check will also tell you the number of previous owners, and crucially, whether or not there is outstanding finance on it. At a time when credit is fuelling so many car purchases both here and in the UK, this check is particularly important.

Know your rights

Finally, check your rights if things go wrong. Consumer law says that when you buy from a dealer, the car should be reasonable and acceptable given its age and history.

It should also be fit for the purpose and roadworthy, and it should match the description given verbally or in an advertisement.

It’s an offence for a dealer to provide misleading information about the car, and that includes any misdirection about its history, specification and any repair work needed. It’s also an offence under consumer law for a dealer to withhold information when selling a car.

The other key point to make here is that if you buy a car from a private seller and discover a problem, there’s not a whole lot you can do short of taking the seller to court.

So take particular car when buying privately and make sure the car gets a good once over from a mechanic.

— SIMI Director General Brian Cooke