PCP Finance – Above Average Mileage – Any experience?

Matt406

Hi Folks,


I’m playing with the idea of changing the car in the New Year and I’m just wondering if PCP finance makes any sense for above average mileage users? Do any of you have experience with PCP finance specifically around the valuation given to the car at the end of the 3 years!


I travel somewhere between 40,000 – 45,000km per year. My current car (2012) is valued around €16,500 with 111,000km on the clock. I’ve had a look around main dealers at new cars and one dealer in particular is really pushing the PCP option with me. Going into this I was not considering PCP because of my mileage and the balloon payment at the end. I was thinking 2 year old car with low mileage…but should I consider PCP?


My understanding on the PCP option is that once the Guaranteed Future Value (GFV) is kept reasonable low this should leave room for the car to be worth more that the GFV thus making up some of the deposit in 3 years if you are trading for a new car (which would be my plan)! I’m nervous that the garage gets to decide this value once the 3 years is up but I’m also conscience that it’s in their interest to make another sale in 3 years – thus it makes sense for them to be fair on this value. I’ve also been told that a mileage penalty will only apply if I want to walk away from the car after the 3 years. Higher mileage will reduce the value of the car in 3 years but in theory there should still be value in the car above the GFV to work towards a deposit for the replacement.


Does anyone have any first hand expenses of this process working for them – specifically around trading the car for a new one in 3 years’ time and the valuation of the car at that point? Thanks.

Drummerboy08

I think your mileage will be too high personally.

Instead of 60,000km you'll have 120,000km on it, so I think it's worth probably 3k less than the same car with 60k on it (unless it's not something like a 5 series, in which case the gap is more).

Depending on the car you go for you should still get away with it but you'll have very little equity in it after 3 years.

Matt406

Yes, that’s what I’m thinking Drummerboy08. I’m talking a Skoda Superb for another Superb – I’ll be putting €10,635 equity from my current car into it as deposit and getting €3615 “cashback” with monthly repayments of €350 over 3 years and GFV of €14,358.


My plan would be to trade for a new car in 3 years but I don’t want to be in a position where I’m trying to come up with that €10k deposit against because the mileage on the car will only makes it worth the GFV! Ideally I’d need at least €5 equity in the car in 3 years to go towards the deposit of the next new car, which I don’t think is realistic! Food for thought! Thanks.

Drummerboy08

You could look at it on a 30,000km per year PCP. The rate is still 3.9% but the total mileage allowance is 90,000km.

The GFV would drop to €11700 so the actual difference in mileage would be smaller, and the drop in equity would be smaller too.

Payment would go to 420pm tho, but it would make more sense given the mileage you're doing.

A 2.0 Style would be good news in 3 years even with that mileage on it so someone might go strong on it which would help your equity.

silver campaign

The dealer doesn't decide the GFV in 3 years. It is fixed and guaranteed by the Bank. The dealer does decide your trade in allowance in 3 years and your higher mileage affects this value. Shop around in 3 years and get the best trade in allowance.
In 3 years the difference between the GFV and your trade in allowance is your deposit amount. You'd be better paying a lower deposit this time around, maybe 15%, & pay higher monthly installments. This will help you budget for the next car as you would ideally like to continue with the same monthly payments.
You will get more cash back, and this money can then be put aside to contribute towards your deposit next time round.

Chances are you won't get PCP with a 40-45 K mileage allowance , most likely 30 K max and pay the additional mileage penalty, for me it's 8 C per KM however, chances are the garage write off some excess to get you back but don't guarantee it

The mileage penalty applies if you hand the car back "OR" get a new car. You either pay it in cash or it's deducted form any value in the car over the GFMV.

You mileage is a bit excessive for new cars, just an opinion, depreciation is nuts, then add fuel !

If you have 16 K in your old car and it's yours then TBH you'd be better off keeping it but you're obviously bored of it now if you're looking at changing it. On the other hand, maybe it's a good time to sell it while there's still some money in it.

Anyway, The thing to do is this.

Add up the 36 monthly payments on PCP + deposit + the Balloon or GFMV this will be the total cost to buy if you want to buy it out at the end, compare this to bank loan or normal finance, excess mileage will only not apply if you buy the car at the end.

If you are going to have 3 K Euro's in excess mileage then you get out of the contract after 2 years, get a new PCP on a new car rather than dump that 3K in excess mileage, while the dealer may write off some excess they also may not and they won't write off over 30 K Kms. Check if there are penalties for getting a new contract after 2 years.

Chances are the dealers eyes will light up when you mention this about coming back in 2 years.

PCP offers far greater flexibility and is super for those doing low mileage and changing every 2-3 years. I got an allowance of 25K Kms and have almost 27 K now since 20th January 15. But you still get more options doing higher mileage.

What PCP is NOT and that's a substitute for someone who can not afford to buy a new car because of the more attractive lower monthly payments.

It would have cost me about 300 PM more to buy via regular finance or bank loan which made no sense since I'm not keeping it.

Some 0% interest deals on PCP hide the so called 0% in lower mileage allowances so make sure you shop around and compare mileage and everything else such as excess mileage.

vintagevrs

Millage only matters if you hand the car back and walk away after the agreement which you won't be doing. Millage as said will just affect the cars trade in value the same as any other car. Km allowance and penalties do not apply.

Drummerboy08

vintagevrs wrote: »

Millage only matters if you hand the car back and walk away after the agreement which you won't be doing. Millage as said will just affect the cars trade in value the same as any other car. Km allowance and penalties do not apply.

Unless the mileage is so high that it reduces the actual value of the car below the GFV....

vintagevrs

That still doesn't change what I just said. Millage penalties only apply when handing the car back and walking away. If you do 300k miles in three years, you can pay off the outstanding money owed, ie the gfmv, and you do not pay any millage penalty.

Excess mileage matters going to a new PCP contract also.

This is why I said if you are going to go way over mileage wise then the other option is to trade it in 2 years for another car rather than pay 2-3 K in excess mileage on an older car.

While the dealer may write off some excess they won't write off 30K +

vintagevrs

That's only if you hand the car back! The extra millage chrge does not apply otherwise.

Drummerboy08

vintagevrs wrote: »

That's only if you hand the car back! The extra millage chrge does not apply otherwise.

Correct.

My earlier point was that if you're trading in the car and the mileage is so high that it reduces the actual value below the GFV, you'll have to pay something out of your pocket, even if it's just the difference back to the GFV.

Excess mileage applies when you go to a new PCP contract, if going to a new PCP then the value over the GFMV which otherwise could be used as a deposit will now be used to pay excess mileage depending on how much the dealer writes off. This is why if you go mad over the mileage you're better off to go to a new car in 2 years.

Excess mileage also applies when handing the car back, i.e walking away and not getting a new car after the lease.

vintagevrs

Your first point isn't completely accurate. It will affect the deposit as the value of the car will be less. Not because of millage penalties. They only apply when walking away

Atomic Pineapple

What is meant when people say walking away? Can you just hand the car back after 3 years and not have to either pay the final balloon payment or enter into a new pcp deal? Does that mean you have effectively just rented a car for 3 years?

ofcork

Thats right but it would be nuts for anyone to do that!

vintagevrs

Atomic Pineapple wrote: »

What is meant when people say walking away? Can you just hand the car back after 3 years and not have to either pay the final balloon payment or enter into a new pcp deal? Does that mean you have effectively just rented a car for 3 years?

Yes, when I say walking away that's pretty much it. If the car is in good condition and is below the stated millage in the PCP agreement, you can give it back and not pay the final balloon payment. This is usually a bad idea as the final payment is normally less than the car is worth.

vintagevrs

ofcork wrote: »

Thats right but it would be nuts for anyone to do that!

No more nuts than buying a new car through any other type of finance and putting high miles on it.

Why would it be nuts on PCP?


Buying a new car on hire purchase you pay a deposit and monthly payments and after the term the car is yours. Total cost is cost of car + %interest.

On PCP, you pay a deposit, monthly repayments (which are less), balloon payment to cover the difference in the lesser monthlies and the car is yours.
Total cost is cost of car + %interest.

Some manufactures have lower % interest rates on PCP so it makes more sense to use the PCP arrangement if buying this way with finance.

ofcork

I mean it would be nuts to hand a car back after paying for 3 years.

vintagevrs

If the 2nd hand market takes a hit and your car is worth less than the GFV then that's the only real time to do it. Means the outstanding amount on the car is more than the car is worth.

vintagevrs

vintagevrs wrote: »

Your first point isn't completely accurate. It will affect the deposit as the value of the car will be less. Not because of millage penalties. They only apply when walking away

Yes so you get less deposit this is what I'm saying, you're still paying for the higher mileage though whatever the garage won't write off this is why if it's going to cost 3 K or more you might be better off changing again in 2 years rather than loose this money in higher mileage devaluation call it that.

vintagevrs

vintagevrs wrote: »

If the 2nd hand market takes a hit and your car is worth less than the GFV then that's the only real time to do it. Means the outstanding amount on the car is more than the car is worth.

This also applies to any car financed through bank loan or regular finance.

As I said, PCP gives you 3 years to think if you want to keep the car or not, if you think that you will buy it then just add the deposit + 36 monthly payments + the GFMV or balloon and this is your total cost to buy and you compare this to normal finance or bank loan.

Chances are a bank loan or finance will charge you a lot more interest because most people take out a loan over 5 years to keep the monthly payments less but they pay far higher interest making PCP a much better deal in this instance because you're financing the car over 3 year paying depreciation + interest and not the total amount of the car, however you got to refinance the balloon or pay it off in a lump sum if you intend to keep the car so you might be doing that over 5 years anyway in total.

vintagevrs

The point I am making is relating to the OP's original question regarding high millage on PCP. There is part of a PCP contract regarding millage allowance, with a penalty cost per km over. Say it's 6c per km or whatever. This only applies if you want to hand the car back and walk away after three years. The penalty per km is not considered if you trade in or pay the balloon and buy the car.

Obviously, a car with higher millage will be worth less on trade in so you may have less equity, no equity or actually owe money on the car. But this is calculated on the market value of the car, not on x km over your allowance by the 6c per km.

I think we are all on the same page.

PCP is just another way of cutting the cake, you're still buying a new car on finance.

drunkmonkey

BMW Select PCP finance offer :
Sample Model: 520d SE Saloon Auto

Terms of Agreement: 25 months

24 monthly payment: €375

On The Road Cash Price: €49,800

Total Deposit: €14,930

Amount of Credit: €34,870

Optional Final Payment: €28,312

Rate of Interest: 3.9%

PCP looks cheap but take this for example, if you done it 3 times in a row, i.e a new car every 2 years for the next 6 years you'd have spent €73,000 and have no car or value in one.
You'd be a lot better off giving some chap €28k for his two year low mileage car and driving it for 3 years. A really nice car I think you can put up with a lot longer.

Similar situation as yourself, pcp just doesn't work for me. I'd like a brand new car but don't want to blow an excess amount of cash on one either. Changing next year sometime, and I'll probably go for a 131 with very low mileage and drive it for 3 years or so.
Not sure whether that's the right thing to do though. In my head it is, open to contradiction.

vintagevrs

I would agree (so much so we bought a 2 year old auto 520d 3 years ago:pac:)

vintagevrs

Just on your sums though, that is assuming a 2 year old 520d is worth €28,312. It is likely going to be worth more each time. Checking carzone says more around €35k.

So that's a €6,688 difference. Multiply that by 2 for the two changes after year 2 and 4. €13k. €13k (ish) should be subtracted from your €73k figure.

So €60k depreciation on 3 new 5 series over the 6 years? Ouch!

drunkmonkey

Your looking at RRP on car zone, I can't see BMW giving you retail price for the used car, I'd say the 28k is closer to the mark.

If you take the example above the new car without discount is €49,800
Your giving a €14,930 deposit and €375 x 25mts a grand total of €23,948 has been repayed to BMW,
The car is now standing them €26,302. Why would they give you €35k, would they even give the €28k?
They have a bit of leeway on the future market value, but I'm presuming that's mint, one stray shopping trolley or a thorny ditch and you down to €26k I'd bet.
Maybe somebody has done this and can enlighten us.

vintagevrs

35 was low to middle of the road for a 2 yr old auto with 20k km on it. I think some were retailing at 40. The car should have equity in it. It's in their interest to not completely shaft you as they'll sell a new car and sell yours with margin too. But future car values is still a bit of crystal ball stuff.

mickdw

Yes there is certainly going to be equity in the cars at 2 years over and above the 28 owed. I'd say you are giving a fair figure vrs. Just ob your maths too. The 7k equity would be multiplied by 3 over the 6 year term. If you want to call it at year 2, 4 and then at end of year 6, you would also have a car worth 7k more than owed on it.
Cutting out the pcp details altogether, it's basically a 50k car being returned at year 2 for 35k and the additional costs of finance thrown in on top of that.
Somewhere under 10k per year to continually have a new 5 series would be reasonable to alot of people.

vintagevrs

You're spot on regarding the 3rd 7k. I had thought about it from a "walking away" after year 6, but in reality you'd get the equity back. If not from dealer, sell privately.

mickdw

vintagevrs wrote: »

You're spot on regarding the 3rd 7k. I had thought about it from a "walking away" after year 6, but in reality you'd get the equity back. If not from dealer, sell privately.

Yep, as always walking away is leaving money behind.
I may just do the figures on that deal with a deposit closer to the likely equity to see what the monthly would be like.
Any pcp where you continued need to pump in deposit money is not a proper deal imo.

drunkmonkey

If your doing the sums anyway..is the guy buying the 2 or 3 years old one really any better off in 6/8 years, doesn't look like there's a lot in it..

That's a crap load of cash to pay. As always. PCP is another means of financing a car it's not a way of funding a car if you can't afford it by traditional means . So in other words, don't use PCP to buy a car you otherwise wouldn't.

The Leaf will cost me 21 K or something like that over the 3 years it's nothing in comparison to the BMW, obviously two completely different classes of cars.

I got 25 K Kms per year mileage and fuel costs me about 6-8 Euro's a week for about 650-700 Kms. So the savings on fuel I dump off the Lease.

It just works out for me that I don't want to keep the car after 3 years and will hop into the new one with 300-350 Kms range. So PCP has benefits, more options. Market value can go any way with any car via any means of financing.

BTW, what's the KM limit on the BMW ?

mickdw

drunkmonkey wrote: »

If your doing the sums anyway..is the guy buying the 2 or 3 years old one really any better off in 6/8 years, doesn't look like there's a lot in it..

Buying 2 years old and keeping for a further 4 years would likely be a reasonable idea.
Swapping every 2 years for a 2 year old car would be quite expensive I'd imagine.

drunkmonkey

[Deleted User] wrote: »

BTW, what's the KM limit on the BMW ?

15k a year

I've done 120,000k in the last 2 years, it's why pcp can't work for me but buying a stupidly low mileage second hand one, allows me to flip it after 3 years with average mileage.

Why anyone would buy a diesel when there doing only 15k or less a year puzzles me.

drunkmonkey

drunkmonkey wrote: »

15k a year

I've done 120,000k in the last 2 years, it's why pcp can't work for me but buying a stupidly low mileage second hand one, allows me to flip it after 3 years with average mileage.

You'd probably be better off buying one average mileage in the first place doing such high mileage , less depreciation. ?

Absolutely, PCP with your mileage is pointless.

drunkmonkey wrote: »

Why anyone would buy a diesel when there doing only 15k or less a year puzzles me.

Maybe depreciation would be less ? but IMO it would balance out via the higher cost of the diesel ?

It would take about 100,000 miles sometimes to make up the difference between purchase price and fuel consumption.

Most people are completely brainwashed into thinking diesel will save them loads of money, the Neighbours that recently bought diesels that never had diesels before and do less than average mileage a year told me they bought them for the cheap road tax lol. I asked them why did they not buy a Leaf like me ? they laughed, oh we do loads of miles and I laughed back but I'm doing probably 3 times the mileage of them per year and they just can't get it into their heads.

I suppose there is some point where the difference between petrol and diesel is huge but for most average cars the difference doesn't make it worth while at average mileage.

Matt406

Hi Folks,

Thanks for all the feedback. Yes, after thinking about it I’ve come to the conclusion that PCP is definitely out with my mileage.

My head is fairly melted at this stage looking at the options. My current car will be 4 years old in January, valued somewhere around €16,500 (at least what dealers are offering me) with 111,500km on the clock. If I kept it for another 12 months what’s it likely to be worth as a 5 year old car with about 160,000km on the clock? Also I’ll have increased maintenance costs on it next year with new tyres, timing belt & water pump, brake disks, etc.

I bought it as a 2 year old car with 25,000km on it and initially started out with the idea of trading it for another 2 year old car in early 2016 with low mileage and going again. At the minute I don’t see much advertised that interests me to a similar spec of my current car (Skoda Superb 2.0TDI Elegance) and what I do see is advertised at least in the high 20,000’s or close to 30,000. That got me thinking that maybe I might be better off just going for a new car (priced around €32,000/€33,000) and trading it in 3 years with around 120,000km on it!

What’s the most economical way to drive a reliable, comfortable family car while covering 45,000 – 50,000km per years?? Open to suggestions/recommendations! Thanks.

vintagevrs

If your current car is a family car, keeping it is the most economical/reliable thing to do.

I agree, keeping it is the most sensible thing to do.

You will be able to buy the 300-350 Km leaf in 2018, and probably the Model 3 Tesla, it would be worth holding out until then, it's not far away. Your high mileage would be peanuts on electricity. No maintenance. Just tyres and pollen filter with the odd brake fluid change. Pads and disks should last well over 160,000 Kms.

mickdw

Just going back to the 5 series pcp.
A crafty buy might be a pcp on a 2 year deal right when the next model 5 series is released.
A 2 year old new model coming early to used market with small miles would surely leave you with lots of equity over gfv.

vintagevrs

mickdw wrote: »

Just going back to the 5 series pcp.
A crafty buy might be a pcp on a 2 year deal right when the next model 5 series is released.
A 2 year old new model coming early to used market with small miles would surely leave you with lots of equity over gfv.

You're still buying a brand new 50K car, it's gonna shed a lot of money in two years. It's not a niche car either. I wouldn't consider a brand new 5 series a crafty buy!

carsfan

5 series still make good money even at this stage in the models life so a new model would be definitely strong after 2 years but I would agree with vintagevrs it's still mass market premium but bmw dealers tend to bid low regardless and then price as a premium select high.
You also have to get yourself into another car presumably another 5 series

mickdw

vintagevrs wrote: »

You're still buying a brand new 50K car, it's gonna shed a lot of money in two years. It's not a niche car either. I wouldn't consider a brand new 5 series a crafty buy!

A meant crafty versus buying one now.
You have to remember that the gfv they have set is taking account of the fact that the car coming back in will be an old model. A new model coming in at 2 year old would have to be worth significantly more than the gfv on that current deal.
a reasonable deal would be to go 10k deposit, about 500 per month and you would have the guts of your 10k again in equity.

vintagevrs

But the cost of ownership doesn't change. A lower gfv means higher monthlies and more equity and the end. A higher gfv means lower monthly repayments and less equity at the end. The cost is still the same.

Granted buying a new model is wiser than buying a 2016 f10 that is soon going to be replaced. The pcp part though I don't think is relevant.

Matt406

My thinking was to change it now while the mileage still isn’t too high and there’s still reasonable value in it.
If I were to keep it for another year or two surely I’d suffer a serious drop in value on the car – either way it’s not going to last me forever with my mileage!

I was thinking of changing it for a 2 year old car in the new year but from what I’ve seen so far anything that I’m interested in is expensive in my opinion and for another 4k or so I could be in a new car, not a two year old one!

Yeah, A 5 series on your mileage is going to kill you in depreciation.

I think if you're happy with your own car, then keep it if you want to and can afford to change no harm in it either if you want it rather than need it. Drive it until it can't loose much more money ?

Matt406

Deleted User wrote: »

Yeah, A 5 series on your mileage is going to kill you in depreciation.

I think if you're happy with your own car, then keep it if you want to and can afford to change no harm in it either if you want it rather than need it. Drive it until it can't loose much more money ?

Yeah, a 5 series was never on the cards…someone suggested it here but it would be crazy money!!
I currently have a Superb. If going new I was thinking for an Octavia, Madza6, or Hyundai i40 – all estates.
Would like another Superb but think that they aren’t the same value proposition that they were!

I'd probably go with the 2.0L TDI 184 HP DSG Octavia if you can , or the 4x4 scout same engine and dsg ? Might even get a decent one 2nd hand.

Mazda 6 suspension is supposed to be very hard.

I think if the cost is reasonable in 2018 the Tesla Model 3 may impress you a lot. May not have the space you need though. But it will give BMW a serious run for it's money , it will also be very cheap to run and you could use this money to pay back a good portion of loan/lease, the more you drive the more you save. That's how I justified the leaf, half the repayments paid from not paying for petrol/diesel and maintenance, motor tax etc. The leaf is a reasonably priced high spec car.

On the other hand the longer you keep your Superb the less value it will have in 2 years, but will cost you more now if you buy a new or newer car so you can't win.

Zurbaran

I don't think you are going to get anything new as comfortable as your own car in that price range.

Maybe look at a two year old Lexus?

http://www.carzone.ie/used-cars/lexus/is300h/used-2014-141-lexus-is300h-2-5-luxury-dublin-fpa-201314449975452700

Or maybe a Honda Accord new or one year old?

http://www.honda.ie/configurator/index.cfm?fuseaction=honda2015.overview&modelID=89&bodyID=4248&modelCode=accord

Both hold their value extremely well even with your sort of mileage.

I like the Mazda 6 in looks and driving dynamics but I'm not sure you would be happy with the comfort aspect when moving from a Superb.

On the other hand the Model 3 will be cheaper and have the performance of the M5 for the cost of peanuts to run ! 2 years , most likely unlimited battery warranty for 8 years an feck all maintenance. But the smiles per miles would be incredible and costing much less than a 1.6 L TDI Golf to run !

Zurbaran

Deleted User wrote: »

On the other hand the Model 3 will be cheaper and have the performance of the M5 for the cost of peanuts to run ! 2 years , most likely unlimited battery warranty for 8 years an feck all maintenance. But the smiles per miles would be incredible and costing much less than a 1.6 L TDI Golf to run !

When is it out and what sort of price are we expecting? I would of thought it would cost about 50/60k and be out in a few years.