PCP: Maximising anticipated mileage reduces overall cost

Welshwonder_2

Hi

Having to buy a new second hand car, and looking at PCP examples all with a £3k deposit over 48 months, weirdly, if I maximise mileage and say I'll do 20,000 miles a year the total amount payable is £23540  - with monthly payments of £318, and a final balloon payment of £5567

But if I say I'll do 5000 miles a year, the total amount payable is £24188  - with monthly payments of £273.95, and a final balloon payment of £8312.50 . 

So does it really pay to over estimate mileage, maximise monthly payments and end up paying a smaller balloon cost and potentially having a car with greater value as it has done less mileage? What am I not understanding? 

(If it makes any difference, I intend to overpay & purchase the car outright in about 18  months but need a low monthly cost for the next 4 months)

Thank you

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All things being equal, a larger balloon should mean that you are paying more interest overall as you are paying back less capital each month.

So you are right, if you intend to keep the car, the best plan is to try and get the balloon as close to zero as possible over the term.

You can do this with Hire Purchase or a bank loan for the purchase price. PCP isn't usually the best way to finance a car you intend to keep, although it can be if you get a large enough "incentive" (= discount) that you wouldn't get any other way.

If you just wanted to borrow a car to have it sat on the drive, you maximise the balloon, and never pay it, so you only pay interest and a small depreciation. (If you could get the balloon to be the same as the purchase price, you would only pay interest- I suppose this could be called a lease)

Herzlos

If you're planning on keeping the car and paying it off early, have you run the numbers on an HP over a longer term? That would likely also give you the ability to make over payments

Welshwonder_2

Ah thank you both

I wanted the 2 year warranty and servicing with the car that comes with a finance deal - as for two years we wouldn't be able to afford any substantive repairs if needed whilst overpaying

I can't get it over any longer term for HP due to its age, although you've got me thinking now, I wonder if they will sell it with a two year warranty at an additional cost - because yes, a car loan is way way cheaper -or I could take out a loan to pay a much higher deposit perhaps and get the showroom finance for just a year. Food for thought indeed

Thank you both again

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Welshwonder_2 said:

I can't get it over any longer term for HP due to its age

Because it is likely to break through "wear & tear" which no warranty will cover.

Buying an older car on long term finance is a big, big risk because there is no manufacturer warranty.

PCP don't like big deposits either because it reduces the interest payable, and that is where they make their money.

Make sure the warranty actually covers things that might break- if it is a BMW for example, broken camchain guides are endemic, and cost an absolute fortune to repair. Some warranties don't cover internal parts of the engine!

Again, a warranty will only ever cover something that unexpectedly breaks prematurely, never anything that has simply worn out (99% of the problems with an older car)

We've had a few posts on here along the lines of "my car needs a new engine for £5000, I'm halfway through my PCP- what can I do?"  and the answer is fix it, or pay the PCP off and scrap it/sell for spares.

born_again

Welshwonder_2 said:

Ah thank you both

I wanted the 2 year warranty and servicing with the car that comes with a finance deal - as for two years we wouldn't be able to afford any substantive repairs if needed whilst overpaying

I can't get it over any longer term for HP due to its age, although you've got me thinking now, I wonder if they will sell it with a two year warranty at an additional cost - because yes, a car loan is way way cheaper -or I could take out a loan to pay a much higher deposit perhaps and get the showroom finance for just a year. Food for thought indeed

Thank you both again

Is that the balance of the manufacture warranty or a 3rd party one. Which tend to not cover much.

How old is the car?

Welshwonder_2

born_again said:

Is that the balance of the manufacture warranty or a 3rd party one. Which tend to not cover much.

How old is the car?

The car is 2019 registration, and the warranty  would be from the manufacturer and can be bought annually for about £130 up until it has done 100k miles provided it is serviced correctly. Currently it has done less than 20,000 miles. We are really limited in what we can buy due to many reasons, including back problems in the main driver which means we have to go for a much higher spec & more expensive model than we really want, in order to get the ease of driving needed.   Thank you