Car finance PCP query

Chimera1to1

I was looking at the VW finance calculation page and started fiddling around with the various settings. They don’t have a page for HP, only PCP. I cannot post links but just search VW Finance Calculator.

As with any loan on a fixed interest rate the larger the deposit and the shorter the term, the less TAP (Total Amount Payable.) so I went for the maximum deposit and minimum period.

When you take out a PCP you select an agreed mileage per annum. At the end of the loan period if you exceed the agreed mileage and want to hand the vehicle back there is a charge per mile over the agreed annual limit x number of years. If you hand the car back and you are under the agreed mileage then you do not get any refund. Now this is where it gets a bit odd. All things being equal, if you increase the annual mileage amount in the calculator, the TAP decreases - in effect, if you decide to keep the car it will cost you less. Up to about 2% less. There is no check on the actual mileage done. It would therefore seem best to estimate that you might drive 30,000 miles per annum. I realise that overstating your mileage to get a cheaper finance deal might constitute obtaining pecuniary advantage by deception but on the other hand surely you have a right to be offered the cheapest overall finance deal.

What do you think?

Nearlyold

The lower the agreed annual mileage allowance the higher the GMFV (aka the balloon payment due at the end of the term if you want to keep the car) and the lower your monthly payments. - Lower monthly payments mean your average debt during the term of the loan is higher (remember that interest is charged daily and added monthly on the whole amount still outstanding which includes the balloon) consequently the TAP will be higher.

The higher the agreed annual mileage allowance the lower the GMFV/Balloon, the higher your monthly payments and the lower your average debt  - meaning lower interest charges and a lower TAP.
There is no issue with the lender in you choosing a higher mileage allowance than you need to lower the TAP - (or you could just go for straightforward HP).

Remember it wouldn't make much sense to hand the vehicle back at the end if you have chosen a higher mileage than you needed -  because the residual value of the car would be likely to exceed the GMFV.

Chimera1to1

Thanks for the explanation. So there is nothing fraudulent because you are just agreeing to take on the burden of larger monthly payments.

Grumpy_chap

If you definitely want to buy the car and not hand it back at the end, or you will eventually own the car, PCP is unlikely to be the best finance route.

Any incentives may create a perversion of that.

MalMonroe

Chimera1to1 said:

I was looking at the VW finance calculation page and started fiddling around with the various settings. They don’t have a page for HP, only PCP. I cannot post links but just search VW Finance Calculator.

As with any loan on a fixed interest rate the larger the deposit and the shorter the term, the less TAP (Total Amount Payable.) so I went for the maximum deposit and minimum period.

When you take out a PCP you select an agreed mileage per annum. At the end of the loan period if you exceed the agreed mileage and want to hand the vehicle back there is a charge per mile over the agreed annual limit x number of years. If you hand the car back and you are under the agreed mileage then you do not get any refund. Now this is where it gets a bit odd. All things being equal, if you increase the annual mileage amount in the calculator, the TAP decreases - in effect, if you decide to keep the car it will cost you less. Up to about 2% less. There is no check on the actual mileage done. It would therefore seem best to estimate that you might drive 30,000 miles per annum. I realise that overstating your mileage to get a cheaper finance deal might constitute obtaining pecuniary advantage by deception but on the other hand surely you have a right to be offered the cheapest overall finance deal.

What do you think?

I have a car on PCP and I love it!  It was 4 years old when I drove it away last year and it's the newest and bestest (no such word but it explains things well) car I've ever been able to afford.

The interest rate is 0% for 2 years and then I can either hand it back, pay off what's still owing or swap for another, newer vehicle.  My deposit was £1k, and payments £55 pcm. I don't do any more than 4,000 miles per year so am well under the 10,000 I am allowed. I wouldn't overstate your mileage though. Just be honest because - big reveal - they DO check the mileage done.
Honesty's always the best policy because you can't kid the kidders.

There is a 12 month warranty, which has just been extended to 18 months thanks to coronavirus, same with the FREE FULL AA membership, including home call - 18 months' worth. 

The car comes with NO TAX TO PAY, and it's small so the insurance group is cheaper.

I was going to buy an old banger before I spotted the deal above. Now I'm so glad I did it and intend to do it again. In the past I've always had to manage with old bangers and they end up costing an absolute fortune to keep on the road. No way could I have afforded to buy the car I have now. I have no regrets.

Don't be put off by some of the negativity on here. PCP is not a bad thing, if you shop around and do thorough research. I don't think the company (Toyota) is going to make much out of me but I'm really pleased with my side of things. 

molerat

I

Grumpy_chap said:

If you definitely want to buy the car and not hand it back at the end, or you will eventually own the car, PCP is unlikely to be the best finance route.

Any incentives may create a perversion of that.

I suppose that depends on what APR they are offering.  Ford, for instance, are offering 0% and a dealer contribution on 2 year PCP deals.

Nearlyold

The interest rate is 0% for 2 years and then I can either hand it back, pay off what's still owing or swap for another, newer vehicle.  My deposit was £1k, and payments £55 pcm. I don't do any more than 4,000 miles per year so am well under the 10,000 I am allowed. I wouldn't overstate your mileage though. Just be honest because - big reveal - they DO check the mileage done

There is no problem at all from the lenders perspective with a customer asking for a PCP with a higher mileage allowance than they expect to use - why would there be? 

Chimera1to1

I had been looking for HP but the salesman I spoke to didn't know the APR for HP. I will be asking when I go in. I am not convinced that they can just set the GMV to £2K like he said on the phone.

Grumpy_chap

molerat said:

I

Grumpy_chap said:

If you definitely want to buy the car and not hand it back at the end, or you will eventually own the car, PCP is unlikely to be the best finance route.

Any incentives may create a perversion of that.

I suppose that depends on what APR they are offering.  Ford, for instance, are offering 0% and a dealer contribution on 2 year PCP deals.

The zero percent and dealer contribution is exactly the type of incentive that creates the perversion to which I alluded.