PCP/balloon payment loan for car

scooterpig

We are looking at buying a used BMW, from a BMW dealer.

We have a monthly budget for the car and will be trading in our current car.

The dealer has suggested that the best way to go would be to take a PCP scheme as that would keep the monthly payments lower, with a higher balloon, and to hand back the car after half-way through the term. The dealer said that he would put in a low mileage on the order to keep the payments lower and inflate the balloon value, even though we do a much higher mileage, and that the finance company can't do anything about this as under the agreements (which are apparently now regulated) they cannot dictate the mileage.

Are there any implications from doing this and exercising the right to terminate? If you go over the mileage agreed at the start is there any comeback from the finance company? The credit agreement makes no mention of the mileage under the right to cancel (we have seen it), so what would happen if we were massively over the mileage agreed at the start?

Shimrod

There'll be a charge - in pence per mile for every mile you go over the that specified. I'd find out what that is and multiply it up by the excess miles to find out how much it will really cost. A higher mileage car will be worth less at resale, hence the penalty charges. Check out some of the car leasing websites for an idea of the penalty rate - although I assume it would be less for a car that has already taken a big hit on depreciation.
I'm a high mileage driver myself (25K pa) and I've never found a PCP scheme that works out better than getting a straightforward bank loan.

Just found this http://www.newcar4me.com/New_Car_PCP-BMW-3SERIES_38220.html excess charge is 7.25p per mile

bclark

I often use PCP finance and I find it a great way of financing a Car as long as you are willing to sell your Car privately at the end.

What I normally do is take out a loan to pay off the baloon payment with a company who does not charge you an early redemption fee. Then I clear the finance and sell the Car, paying the loan off immediately.

Doing it this way has allowed me to keep my monthly payments right down!

silvercar

If you hand back the car halfway through the term, what are you going to drive?

Start again with another PCP presumably, but this time you have no car to part exchange/ act as deposit so your payments will be higher.

deltic_2

This is very risky.

If you keep the car until the end of the PCP, you will be hit with a high mileage excess charge. The lower the dealer sets the mileage, the higher this charge will be. You could be talking thousands !

If you sell the car half way through, then the car will be valued at its trade value versus the mileage you have done and the age of the car. The dealer or you will then get a settlement figure from the finance company to clear the PCP. This will be the cost of the car new, less deposit, less equity paid off within your monthly payments (and bear in mind that with PCP, a large proportion of your monthly payment is interest as you are financing the full value of the car). You will be liable to pay any difference between the settlement figure and the value of the car. The lower the dealer sets the mileage and the higher the mileage you do, the greater this charge could be. If you have paid a large deposit, then rather than owe money, you will see your equity in the car drop quite heavily, making your next car more expensive.

The long and short of it is that this looks like a way for the dealer to tempt you with low monthly payments so that they can get the sale, and the salesman can get his commission. It is loaded in their favour and not yours.

The only way to do a PCP is to be honest with the mileage.

zeon999

Yeah sounds like the dealer is trying to set you up to be honest, there is always an excess milage fee which is crazy money and something you want to steer well clear of. Make sure you take out a contract which will cover your milage or expect a crazy fee to pay at the end. Also canceling any leasing contract halfway though the contracted term will also result iin a big fine.

PCP can workout great even more so for cars like BMW and other cars in that kinda price range. You just need to make sure you find the right contract for your needs.

If your going to go ahead and do a leasing deal I would advise you to check around though, dealers are very often not as cheap as leasing brokers.

I normally use Total Fleet Services for leasing they are not always the cheapest but are a company I trust and know they will look after me, unlike alot of the new compaines all starting up in leasing all offering low priced deals and then setting you up to charge you the earth when you break the contract like they set you up to do.

DealDrivers_company_representative

Look for a sensible mix of all the elements of the deal

a) a small difference between purchase price and ballloon figure is good as you are paying off the loan on that amount of difference, so a high balloon does indeed reduce the monthly amount but then if you might want to keep the car at the end you have a high amount to find in one go. If you let it be sold, there's little chance of having any excess profit from its sale as a deposit towards your next car as the balloon has been set too high in the first place

b) don't get hooked on just a low apr amount, as a ruile of thumb the lower the apr offered means it is calculated on a higher car price (i.e. you don't get a decent discount on the car so you just paying a lo apr over borrowing more money thatn you would if you got a discounted car properly!)

c) Never, ever, underestimate your mileage..excess mileage charges can be heavy...and you need to know what that will amount to.

You need a sensible balance of a decent apr over a low borrowed amount and realistic mileage.

Which manufacturer brand is it you are looking at? We can let you know what the current dealers offers are on that brand.

Jamesyg27

scooterpig wrote: »

We are looking at buying a used BMW, from a BMW dealer.

We have a monthly budget for the car and will be trading in our current car.

The dealer has suggested that the best way to go would be to take a PCP scheme as that would keep the monthly payments lower, with a higher balloon, and to hand back the car after half-way through the term. The dealer said that he would put in a low mileage on the order to keep the payments lower and inflate the balloon value, even though we do a much higher mileage, and that the finance company can't do anything about this as under the agreements (which are apparently now regulated) they cannot dictate the mileage.

Are there any implications from doing this and exercising the right to terminate? If you go over the mileage agreed at the start is there any comeback from the finance company? The credit agreement makes no mention of the mileage under the right to cancel (we have seen it), so what would happen if we were massively over the mileage agreed at the start?

Actually, your dealer is right - regardless of what other people are saying here.

I am also a high mileage car user (30K a year) - and have been concerned about either excess mileage payments, or a high payment at the end - which leaves me in negative equity.

However, having spoken in length to both dealer, and finance company - you are entitled to hand the car back half way through the total amount payable. Please note, this isn't always half way through the term.

The FSA states that under the consumer credit act, if you are handing the car back and terminating your credit agreementm they can not charge you any excess mileage.

A collegue of mine did just this with his VW passat, handed back from a 15k mileage agreement, 3 years in with 100K miles.

I dont suppose the finance company are happy with it - but there is nothing they can do. Check the small print of the finance contracts - it is in there.

Cheers,

James

Jamesyg27

Guys - also see here loads of information on handing back half way through the term. It confirms what I have said 10 fold.

p.s. youll have to join the link together as I cant post them yet

http:// forums.mercedesclub.org.uk /showthread.php?t=45960

Hintza

Jamesyg27 wrote: »

The FSA states that under the consumer credit act, if you are handing the car back and terminating your credit agreementm they can not charge you any excess mileage.

Can you provide a link to this?

LandyAndy

Jamesyg27 wrote: »

However, having spoken in length to both dealer, and finance company - you are entitled to hand the car back half way through the total amount payable. Please note, this isn't always half way through the term.

It is quite possible that the balloon itself will be greater than half the amount payable. ie you will have to pay to the end of the contract and pay off part of the balloon to reach the 'half paid off' stage.