Here we go again, banging on about the pitfalls involved with a PCP (Personal Contract Plan). But we wouldn’t do it if it wasn’t important. This time a member shares his thoughts on why the devil really is in the detail.

‘First off, you really do need to know what you’re getting into. Yes, there can be lots of positives to a PCP (Boy, those low rates do sound appealing), but there are also negatives to be aware of before you get a new car with a PCP. Here’s a few of them:

You’ll no doubt be told you can settle early without having to worry about a penalty, but be careful. That’s because the interest could be front loaded. If it is front loaded be aware that you might well end up owing more than you budgeted for. But whatever the structure, one sure rule of thumb is that the lower the PCP rate, the better.

Before you drive your new car down the road, remember what might be coming down the road. Like will you keep to the mileage limits? Be honest with yourself. Of course, you can go over, but there will be a penalty for every extra kilometer.

Remember too that the extra mileage penalty only kicks in if you plan on handing the car back at the end of your contract. Also, pretty much every PCP contract has a low value GMTV (Guaranteed Minimum Future Value) for the car factored into the agreement, a value which in a nutshell reflects how much you’ll repay over the term. Which could be a lot!

At the end of your contract you might be tempted to trade in the car and get a new model. But again, be careful. That’s because the sales teams in the car dealership can usually recognise if you have balloon payment to hand or not.

If you don’t have the balloon payment in your back pocket, you’re probably best to play your cards close to your chest and say you’re undecided whether you want to clear the balance or upgrade to a new model. That’s because if you reveal you don’t have the balloon payment handy you’ll be in a weaker negotiating position, and be at the mercy of the sales team in terms of how much equity they say is in your car. (The equity is calculated by the trade-in value less the GMTV, or whatever is outstanding.)

Finally, because it appears that you might not have as much equity as you thought you would, you’ll probably feel pressured into going with the same car brand again. Bingo. They’ve got you. Again.

So what’s the better way? Our way of course, where a loan from your trusted Credit Union means you’ll be in control of your funds, which means you’ll be better able to negotiate at the dealership. And, of course, you’re far less likely to be tied into one particular car brand.