PCP Finance - Balloon Payment vs GFV

joAB

I put down a deposit on a car at the weekend and agreed a PCP deal whereby I inflated the mileage (30,000) to increase my monthly payments to get the balloon payment/GFV of the car to £15k. 

I plan on buying the car at the end of the term (I have looked at HP but the monthly payments are too high).  I took this approach with my current car and it’s worked out well.

The dealer has come back with an alternative proposal whereby the mileage is 8,000 (this mileage is what I would actually do), GFV is £22k and the balloon payment is still £15k and my monthly payments are the same. On 8000 mile/year the payments would usually be £300/month but he has inflated them back to the same as my original deal payment (£440) to get the balloon payment down - so essentially I am overpaying on my monthly payments so the balloon payment at the end is less than the GFV.  

I was just wondering if anyone has come across this before as I’m struggling to find any information or examples of the balloon payment being less than the GFV? 

[Deleted User]

If you're buying at the end, the balloon is immaterial, if you overpaid or put a huge deposit down, for example, the balloon would be less. The car will still be worth the GMV unless you broke the terms like excess mileage

DrEskimo

That doesn't make any sense to me.

The balloon payment is the GFV.

But in any case, if we assume that the finance company continue to guarantee the price after 3yrs/24k miles at £22k, it doesn't really make any difference to you compared to taking a deal with a higher mileage. If you've paid more to only owe £15k, handing it back won't ever be a good option.

My real advice is to check the actual cost in interest. The MSE thing to do would be to buy a cheaper car where you can afford the payments on a loan without the balloon payment at all. Offsetting a large payment till the end really does increase the interest payable quite substantially.

Better yet, buy an even cheaper car and try and negate the need for any finance at all.

Edi81

Check the APR on both and the total amount of interest. 

I’m betting the APR is higher on the higher Balloon/lower mileage. 

That’s the only way you can compare. 

DrEskimo

Edi81 said:

Check the APR on both and the total amount of interest. 

I’m betting the APR is higher on the higher Balloon/lower mileage. 

That’s the only way you can compare. 

Doubt it.

It's just changing the loan structure. The APR doesn't change just because you change the term or mileage.

joAB

DrEskimo said:

That doesn't make any sense to me.

The balloon payment is the GFV.

But in any case, if we assume that the finance company continue to guarantee the price after 3yrs/24k miles at £22k, it doesn't really make any difference to you compared to taking a deal with a higher mileage. If you've paid more to only owe £15k, handing it back won't ever be a good option.

My real advice is to check the actual cost in interest. The MSE thing to do would be to buy a cheaper car where you can afford the payments on a loan without the balloon payment at all. Offsetting a large payment till the end really does increase the interest payable quite substantially.

Better yet, buy an even cheaper car and try and negate the need for any finance at all.

“ That doesn't make any sense to me.

The balloon payment is the GFV.”

This is why it doesn’t make sense to me either - as this is what I always thought! 

joAB

DrEskimo said:

Edi81 said:

Check the APR on both and the total amount of interest. 

I’m betting the APR is higher on the higher Balloon/lower mileage. 

That’s the only way you can compare. 

Doubt it.

It's just changing the loan structure. The APR doesn't change just because you change the term or mileage.

The APR is the same on both quotes, as is the total amount payable