PCP mileage intentionally exceeded, with intention to trade in.

Nick212010

I’m after some advice. I’m in the process of trading in my current car on PCP finance at the end of 48 months. I’m well under the mileage pa limit. I’ve averaged 12k miles pa, where my limit was 15k. This happened due to unexpected life events.

However, for my next car on PCP finance I’m considering setting an intentional low mileage pa to save on monthly payments. I’m torn between setting a 6k pa mileage, but I expect to do around 12k, or should I just set the mileage at 12k?

I have no intention to keep the car at the end of the finance agreement where I’ll be expected to pay off the remaining balance, nor do I intend to return it to my finance company where I’ll be charged heavily for over mileage. My intention is to trade it in again in four years time, and get another vehicle. Ideally with the same dealer.

What pitfalls, if any, are there? With the excess mileage, if I trade it in I won’t be penalised by the finance company because the car doesn’t go to them. And the dealer will value the car after four years and I intended to put it towards paying off the balance and (hopefully) towards any new vehicle. Is it worth doing this to save a chunk of money per month? Or are the benefits in the short term not worth it in the long term?

WellKnownSid

Aside from the obvious problem of not knowing what the car will be worth at trade in, you’ll be paying interest on the larger capital amount you haven’t paid off. Fine for a 0% deal but not for much else.

MyRealNameToo

https://forums.moneysavingexpert.com/discussion/6669489/pcp-mileage-intentionally-exceeded-with-intention-to-trade-in

Main one is if your trade-in value is significantly below the balloon. Our last car's balloon was almost £7.5k above the sticker price of similar cars and clearly trade in would have been substantially lower. We were pretty much exactly at the mileage so we handed it backed and walked away but you'd be left with either several grand of excess mileage to pay or whatever the negative equity is on the loan.

Goudy

Any PCP deal will calculate the value of the vehicle at the end of the contract and that becomes the deferred payment (GFV), Part of this calculation is mileage based.

Take out a high mileage allowance PCP and GFV drops due to the car becoming less valuable thus the monthly repayments rise.

Likewise, set a low mileage allowance and the vehicles GFV rises and the monthlies drop.

Now the problem with "gaming" the mileage to suit lower monthly payments is that one way or another, you'll pay for those.

In the event of handing the car back to the finance company at the end of the contract, they'll charge you the excess mileage, usually 9p or 10p per mile.

If you trade it in, you won't necessary pay that excess mileage charge directly but the vehicle with those extra miles on the clock will probably be worth less that what you owe as the GFV was worked out on a lower mileage total.

The data for GFV's and trade in values is all the same data, it's all mainly based on data collected from the industry from auctions. So it's a mistake to presume the GFV and trade in values will match if you have gamed the mileage like this.

It's more than probable the trade in value for a higher mileage car will be less than what the GFV should be for a lower mileage car.

Your problem with trying to work out if it might be worth it is you only have one reference, what the GFV and therefore the cars value would be at the end of the contract with that lower mileage total.

Now you could run a couple of PCP quotes for the same make and model with different mileages and see what total repayment would be for all of them and therefore work out what your risk might be, but don't forget the G in GFV mean guaranteed and any future trade in value isn't.

One of the selling points of a PCP is you have options at the end of the contract, but by painting yourself into a corner like this you will probably have to pay for whichever of the those options you take.

Arunmor

I've known companies to run fleets on minimum mileage and then run up starship miles on them and then pay the balloon, I assume for monthly cashflow improvements. Again you need to calculate all the numbers on the available information you have. The great unknow of course being the future trade in value.