Recent articles in the national press warning of ‘negative
equity’ for customers on personal contract purchase (PCP) schemes
have been criticised by motor finance experts for their potential
to mislead the public.
The Daily Telegraph and Daily Mail both
published articles on January 6 warning that motorists coming to
the end of their PCP agreement term could find themselves in
‘negative equity’, with the vehicles currently worth thousands less
than the residual values (RVs) calculated when the contract was
The articles were prompted by a report in car magazine Auto
Express, which said that the shortfall between predicted and
actual RVs could cost UK motorists up to £272m – although it was
not clear how this figure was calculated.
The implication in all three articles is that shortfalls in RVs
will leave PCP customers ‘out of pocket’ – even though it is the
finance company which will swallow the loss, if a PCP customer
decides to hand the car back instead of opting to pay the balloon
Motor finance broker Graham Hill said: “[The articles] are
strongly recommending that people don’t take PCPs, which allow them
to pass over the huge [RV] losses to the funders.
“It’s criminal to give the impression that PCPs are creating
losses for the customers – in the cases shown, the customers have
saved a fortune,” he added.
Remarks attributed to the Finance & Leasing Association
(FLA) were used in the original Auto Express article and
re-quoted in the national media – but the association complained to
the magazine that its comments had been misquoted.
The spokesperson said: “The FLA is disappointed with Auto
Express’ inaccurate comments. Our view is that PCP offers
great flexibility to consumers. At the end of their agreement, they
have the option to pay the balloon payment to own the car outright,
trade the car in and put any equity towards a new car, or simply
hand the car back to the dealer.
“Consumers are in a great position as many of the risks
concerning a vehicle’s future value are carried by the finance
PCP is growing in popularity among consumers, according to FLA
figures, which show that over the past year, PCP was used to
finance 47.8 per cent of new car purchases and 23.8 per cent of
used car purchases – growth of 7 per cent and 23 per cent
respectively on the previous 12 month period.