Car PCP finance Balloon Payment

Arthur_Willcox

So I'm looking at getting a small car on finance.

The cash price is £11k so I can expect a full PCP payment with the GFV payment to cost me around £12.5k+.

Anyway, the issue I have is that I am pretty sure that I am going to want to keep the car after a 36 month agreement, after £3k deposit and monthly payments of around £150ish. I am probably setting my annual mileage to 20,000.

What I want to understand is how the GFV works as a payment.

So with an example GFV of £4000, if the car ends up doing considerably less mileage, surely it is worth more? Therefore it could be valued at £5000. Does this then mean that if I want to buy the car at the end, I have to pay £5000 as opposed to £4000?

importantly: The reason I ask is because, as stated earlier, I am almost certain to want to keep the car, but if I initially agree higher mileage the GFV goes down (and that looks good to me because obviously I want to knock as much as I can off of the final payment).

The way this makes me think is that if for those who definitely want to keep the car, surely they should set their mileage limit as high as possible, to lower the final cost (and overall cost) regardless of how many miles they actually do. The value wouldn't matter so much because they want to run the car into the ground.

please help me on this

rs65

Arthur_Willcox wrote: »

The way this makes me think is that if for those who definitely want to keep the car, surely they should set their mileage limit as high as possible, to lower the final cost

Or set the mileage low and reduce the monthly payments.

Get two quotes and see what the overall cost is on each.

disco.stu

Arthur_Willcox wrote: »

So with an example GFV of £4000, if the car ends up doing considerably less mileage, surely it is worth more? Therefore it could be valued at £5000. Does this then mean that if I want to buy the car at the end, I have to pay £5000 as opposed to £4000?

No. If the GFV is £4000, then that is the amount (plus any fee) that you have to pay to settle the outstanding finance. It doesn't matter whether the car is worth £5 or £50,000.

disco.stu

rs65 wrote: »

Or set the mileage low and reduce the monthly payments.

Get two quotes and see what the overall cost is on each.

That doesn't really help the OP if he is going to pay out the balloon. His aim is to minimise the final balloon. The overall value of the vehicle under finance is the same, so reducing the mileage won't reduce the total payable. It will simply lower the monthly payments and make the balloon larger.

Also consider a Hire Purchase. It will usually give you a lower overall cost than paying out a PCP, but it means higher monthly payments with no balloon instead of lower monthly payments and a big balloon at the end.

rs65

disco.stu wrote: »

That doesn't really help the OP if he is going to pay out the balloon. His aim is to minimise the final balloon. The overall value of the vehicle under finance is the same, so reducing the mileage won't reduce the total payable. It will simply lower the monthly payments and make the balloon larger.

That's the point I was making. The OP is asking about increasing the mileage to reduce the final payment but he should be focusing on the total of all payments.

Arthur_Willcox

Thanks for you help.


And you have cleared up my question about the GFV payment nicely.


Unfortunately I do not have a large enough deposit to make the monthly repayments affordable for a hire purchase, so PCP is the way forward for me.


Increasing the mileage does actually reduce the total amount payable cost, only by a negligible amount over the course of the agreement. Although I stress I am intending on keeping the car, so every little helps.

So finally, I shall put this to you.


Is it sensible to increase the mileage as far as I can to maximise my monthly payments, therefore reducing the balloon payment to a long-term affordable level?

(as opposed to increasing the mileage to "just sensibly the amount i will actually use")


----


Once I know this, I can go back to the dealership and possibly say, "maximum mileage please!" (they're always trying to make you put it as low as possible, probably because they want to keep you locked into getting a new car with them every three years, whereas I want to keep a new car)


thanks in advance!