PCP & Guaranteed Future Value

dolphin85

Hi, first time poster

I have a PCP agreement that is coming to an end later this year and I'm seriously confused about what is going to happen and the best solution. Here's a few bits of information..

2014 Ford Fiesta, 67500 miles
Currently in excess of 20000 miles over my agreement (change of job screwed me 1 year in to the agreement) 14p + VAT per mile!!!
Car currently worth approx £4500-£5000
GFV on contract £5777

My main question is, will that final balloon payment be lower with the mileage being over the agreement?
I'm not sure what I'm going to do at the end of the agreement. My current plan is to try and accumulate the money to pay the balloon payment and own the car, run it until it hits 90000 miles and assess my options from there.
As far as I understand, handing the car back and getting a new one will see me hit with the mileage charge, is that correct? Also, will this option require me to find another deposit given the lower current value of my car?

It's all a bit confusing and I think it should be made clearer at point of sale what the permutations are at the end.

Any help or insight much appreciated

Dolph!

AdrianC

dolphin85 wrote: »

My main question is, will that final balloon payment be lower with the mileage being over the agreement?

No.
You contracted to either hand it back at the end of the period, or to buy it for a pre-agreed balloon of £5,777.

It's all an integral part of the contract you agree at the start of the term.
With a PCP you pay for the expected depreciation through the term, and defer the expected residual value. Higher contracted mileage = greater expected depreciation = lower expected residual.
If you'd contracted for a higher mileage, then the balloon would have reflected that higher mileage by being lower - but the monthlies through the term would have been higher, because the car starts off costing the same amount, and you start off borrowing the same amount.

As far as I understand, handing the car back and getting a new one will see me hit with the mileage charge, is that correct?

Correct.

Also, will this option require me to find another deposit given the lower current value of my car?

Whatever you do with a new PCP or contract is totally outside of the scope of this one. If you had equity in the car (value > balloon), then a new finance deal might involve the car being bought out for the balloon, and that equity being put towards the new deal as part of the initial payment.

It's all a bit confusing and I think it should be made clearer at point of sale what the permutations are at the end.

It is clear. You either hand it back (subject to mileage excess payment) or you buy it for the balloon. That's it. All the options...

You could have changed to include a higher mileage - obviously, for a higher monthly - during the contract. That may, or may not, have worked out cheaper than paying the excess mileage at the end.

wgl2014

That excess mileage will mean approx £2800 to pay if you hand the car back. Given the cost for you to buy the car is approx £1000 more than it is worth it would seem better to buy it at the end of the PCP.
The dealer may try to get you into another PCP by rolling the mileage charge into the new deal which is Ok so long as you understand this and are happy with it.
As to the cost for you buying the car being lower due to the excess miles..... Not a chance. The cost will be as per your contract.

Goudy

The GFV is just that.
If you want to keep the car, that's what you pay the finance company. (sometimes you need to add on an admin charge as well)
This doesn't change because of the excess mileage.

Hand the car back to the finance company and you will owe them the excess mileage charge and any charges for damage above the usual wear and tear guidelines as they expect a £5777 car back with 20000 less miles on the clock at the end.

You can of course trade it in far a another car with a dealer, this could be outright, HP or PCP deal.
Now you aren't dealing with the finance company but a dealer, so the finance company's contract terms aren't really in play, except that you owe them £5777.

The dealer will offer you a trade in value for it, you will not have to pay the excess mileage charge doing this, but the trade in value will be based on the mileage and condition of the car, the more mileage/damage, the less it's worth.

This may or may not cover what you owe.

If it does, that's great, they take your car and clear the finance off it and you can start again with a level playing field.
If it doesn't, you could end up refinancing the outstanding amount within the new deal, but this isn't great as you end up borrowing more and paying interest on an amount you're already paid interest on.

As the difference isn't massive, you could try haggling with different dealers to get them to match the trade in value to the outstanding finance amount.

They do have some scope to shuffle the paperwork on a new deal, so they might offer you enough on your trade in to cover the GFV on your old car and perhaps take it off the other end, like any discount or deposit contribution on offer.
You just need to tell to be up front and tell them what you want, if they want your custom, they'll work for it.

parking_question_chap

dolphin85 wrote: »

My main question is, will that final balloon payment be lower with the mileage being over the agreement?

If that was the case everybody on PCP would purposefully drive up and down the motorways at 1,000 rpm to reduce the final payment.

Sounds like you will have a very steep bill if you try and hand back. Suggest finding the money to buy.

DrEskimo

dolphin85 wrote: »

Hi, first time poster

I have a PCP agreement that is coming to an end later this year and I'm seriously confused about what is going to happen and the best solution. Here's a few bits of information..

2014 Ford Fiesta, 67500 miles
Currently in excess of 20000 miles over my agreement (change of job screwed me 1 year in to the agreement) 14p + VAT per mile!!!
Car currently worth approx £4500-£5000
GFV on contract £5777

My main question is, will that final balloon payment be lower with the mileage being over the agreement?
I'm not sure what I'm going to do at the end of the agreement. My current plan is to try and accumulate the money to pay the balloon payment and own the car, run it until it hits 90000 miles and assess my options from there.
As far as I understand, handing the car back and getting a new one will see me hit with the mileage charge, is that correct? Also, will this option require me to find another deposit given the lower current value of my car?

It's all a bit confusing and I think it should be made clearer at point of sale what the permutations are at the end.

Any help or insight much appreciated

Dolph!

Presumably the estimated value of the car of between £4,500 to £5,000 is what you expect as trade value given it's current age and mileage? In which, case it makes much more sense to try and trade it in, as the shortfall between that and your £5,777 GFV is between £1,277-£777, whereas your excess mileage alone would be £3,360 (plus any wear and tear..).

If £5,777 still represents a good price for the car with the current mileage, then you may as well just buy it. You've owned it so know it's history.

Smellyonion

I had a similar situation.


Why would using it more reduce the cost you need to pay them. It makes 0 sense.


Buy it and sell it. Even if you must go through credit (free or cheap).

Buying it will cost you £5.7k
Handing it back will cost you 3.3k (16.8p x 20,000)


If you can sell the car for more than the difference (2.4k) you will save money. You will save 2.1k if you sell it for 4.5k, taking your effective cost to 1.3k or 6.5p per mile.




Your mileage excess is ridiculously high for that type of vehicle.

sheramber

My current plan is to try and accumulate the money to pay the balloon payment and own the car, run it until it hits 90000 miles and assess my options from there.

If you don't want to buy another car that sounds like the best idea.

Once you own it you can decide to trade it in at any time.

dolphin85

Many thanks to the responses so far, although I feel I kind of understood the permutations, it's always nice to hear other opinions and get some clarification.
For those who mentioned it, I did try to increase my mileage limit after 9 months, but the finance company refused and basically said it was tough.
I think I'm going to press on and find the money to pay the balloon at the end of the agreement although I may look to see if a dealership will be willing to value my car at or around the balloon value and trade in for a new one. I was looking at the new Focus so maybe I'll just return to the Ford dealership I went to for the Fiesta.

Thanks again,
Dolph

DrEskimo

dolphin85 wrote: »

Many thanks to the responses so far, although I feel I kind of understood the permutations, it's always nice to hear other opinions and get some clarification.
For those who mentioned it, I did try to increase my mileage limit after 9 months, but the finance company refused and basically said it was tough.
I think I'm going to press on and find the money to pay the balloon at the end of the agreement although I may look to see if a dealership will be willing to value my car at or around the balloon value and trade in for a new one. I was looking at the new Focus so maybe I'll just return to the Ford dealership I went to for the Fiesta.

Thanks again,
Dolph

Don't do them together. Rolling negative equity into a new deal is just going to put you in a difficult situation should you want to come out of it early, as essentially all they will do is reduce the discount you are getting on the new car, thus paying more than you should.

Treat them as completely different transactions. Look to get the most you possibly can for your current car, then settle the finance if there is any shortfall. Then go and negotiate the best possible price on the next car (which will invariable be a used car....).

neilmcl

parking_question_chap wrote: »

If that was the case everybody on PCP would purposefully drive up and down the motorways at 1,000 rpm to reduce the final payment.

Sounds like you will have a very steep bill if you try and hand back. Suggest finding the money to buy.

How does driving at 1,000 rpm increase the miles you drive :rotfl: