PCP and Choosing Higher Mileage

[Goody13]

Hi. This is my first post here and having seen this forum come up a few times in search engines, I figured this would be a good place to try to seek some answers that I cannot seem to find online.

I am shortly looking at buying a Kia Cee'd on a PCP deal. The deal has an excess mileage surcharge of 14.9p per mile, which could prove costly.

By playing around with their finance calculator, however, it would appear that it is better to choose a higher annual mileage. Whilst this will increase the monthly payments, the GFV is reduced, as it is based on higher mileage, and I have found that the net result is that the extra amount I would pay on the monthly payments over three years is, in all cases, cancelled out by the saving made by having a reduced GFV.

In addition, if I, say, based the PCP on 16,000 miles pa, but only did 12,000 miles pa, I would have paid a bit more on the monthlies, but the GFV is less than it would have been had I chosen 12,000 miles at the outset and, as I mentioned above, the extra payments are more than cancelled out by the lower GFV.

Therefore, in the example above, the way I see it is that if I traded the car in after 3 years with 36,000 miles on the clock as opposed to the 48,000 I would have paid for, as the GFV would be lower with the 16,000 pa limit, the difference I would get on the car between its actual value and the GFV on trade in would be higher than if I had chosen the correct annual mileage of £12,000.

I am puzzled by this because being a cynical sort of person I am wondering where the catch is, but unless I am being a bit thick, I cannot see why anyone would not go for a higher mileage option, possibly to the maximum amount, other than if they could not afford the monthly payments at the higher mileage limit.

Am I missing something fundamental here? Is there a minimum mileage written into these contracts? Any insight as to the best way to go would be appreciated.

Thanks in advance.

[JamesD1]

the only time the milage matters is if you intend on giving the car back rather than paying the baloon at the end. we made that mistake last time, now we have 6k annual milage and should do about 14/15k. there is a charge on excess milage (if you give it back) of whatever they charge plus a percentage if you go too far over.

if you trade it in against another car then it still doesnt matter.

always worth looking at pcp vs lease (in our case we felt safer doing pcp this time round, as were a bit more in control)

[andy-xr]

I was told once to stick 10k down and then trade the car in to a dealer with the excess miles on (I wanted 20k pa)

Never went for it in the end, but I could see what the sales guy was saying

[Goody13]

Thanks. I understand the bit about giving the car back at the end, but on the basis I need to run a fairly new car and will probably need to change after three years, I am looking to maximise the difference in value between the actual trade-in price and GFV at the end of the contract, and choosing a higher monthly mileage seems, at first glance, to be the obvious way to do it.

If you choose a lower mileage but end up doing more, your car could be worth less than the GFV anyway, so I don't see the point in doing this if you are going to hand it back. In any event, surely even if you were going to buy it after three years, it's better to pay the higher monthly amount as less interest would be charged overall ... ?

[Mercury00]

I don't think the interest will be less by paying a higher monthly amount - you're still paying for it over the same length of time anyway? As for maximising the difference between GFV and trade-in price, obviously the more miles you do the less it will be worth so I'd expect the difference between the two to remain pretty constant no matter what your mileage is (within reason).

[moffat]

My advice would be to get the balloon adjusted for the higher mileage to ensure that you are not in negative equity at the end of the deal.

Negative equity is a PIA if you want to PX the car.

However, remember that once 50% of the credit is paid back you can also VT (voluntary terminate)handing back the car to Kia Finance. This does not have any impact on your credit rating.

[Goody13]

Interesting views. Now I am home, I can give a real example of what I was meaning with real figures.

Firstly, 12,000 miles pa with a £1,650 deposit, cost £258.45 pm, GFV £5,325.25.
Or 16,000 miles pa with £1,650 deposit, cost £268.09 pm, GFV £4,951.25

So, over 36 months, the 16,000 mile deal costs an extra £304.47 but the GFV that you have to pay on completion is £374 less, so 36,000 miles instead of 48,000.

So, say for argument's sake that with 36,000 miles the car is worth £6,000 and with 48,000 miles the car is worth £5,500, but the GFVs are £5,325.25 and £4,951.25 respectively, If you have paid for the 12,000 mile option the deposit you can have towards your next car is £6,000-£5,325.25=£674.75 but if you have paid for 16,000 miles but only done £12,000 miles, you will have paid an extra £304.47 on the monthlies but the deposit for the next car will be £6,000-£4,951.25=£1,048.75, so your comparable deposit is £1,048.75-£304.47=£744.28.

This means that you are safer by going for the higher mileage option, but not only can you not lose, but you will be £70 better off by playing safe.

If I am right, why would people not always go for the higher mileage option, or are my calculations flawed somewhere? Or am I just thinking too much?!

Thanks for reading my musings anyway.