Trying to get my head around Renault PCP finance

[AlexNJ89]

I'm buying a Renault on PCP agreement.

The dealer has told me that to be conservative with the annual mileage I put down for the deal because it is only 8p per mile excess.

So for example if I think I will do 10,000 miles, to put 6,000 miles, because the excess is only £480, ie £40pm.

Which means that the GFV will be higher, less monthlies, but if I don't use the mileage then I haven't paid for mileage I'm not using.

But if the GFV of the car is higher, I could end up needing to pay a lot more to own the car at the end (which I intend to do).

I'm trying to figure out if there is a 'gotcha' because it seems like a no brainer.

Advice would be appreciated.

[anonymous-user]

I assume that the majority of people don't ever pay the balloon payment and just roll on to the next new car. Because of this, the only thing that is important to these people is the monthly payment, hence the lower the better.

Work out which is cheaper over the full term including paying the balloon at the end and go with that.

[timbo999]

If you want to own the car at the end, you want the balloon payment to be as SMALL (i.e. large annual mileage) as possible as that reduces the amount of interest you pay overall.

[Dr Jekyll]

If you are that confident you want to own at the end, why PCP instead of a longer loan?

Anyway higher mileage, lower balloon, slightly less interest to pay. If you do decide not to keep it and you haven't done all the miles you've paid for at least you have more equity as a deposit for your next car.

[RoVoFob]

AlexNJ89 said:

I'm buying a Renault on PCP agreement.

The dealer has told me that to be conservative with the annual mileage I put down for the deal because it is only 8p per mile excess.

So for example if I think I will do 10,000 miles, to put 6,000 miles, because the excess is only £480, ie £40pm.

Which means that the GFV will be higher, less monthlies, but if I don't use the mileage then I haven't paid for mileage I'm not using.

But if the GFV of the car is higher, I could end up needing to pay a lot more to own the car at the end (which I intend to do).

I'm trying to figure out if there is a 'gotcha' because it seems like a no brainer.

Advice would be appreciated.

First off, if you plan to own the car at the end of the contract, you’ll pay less with Hire Purchase than PCP, provided the APR and any deposit contribution discounts are the same (as you pay off the balance faster with HP, meaning you’re borrowing less money at any specific point, so less interest builds up).

If paying the lowest overall cost to buy the car is your aim, therefore, you should bypass PCP and go for HP (this is assuming that interest is charged. If not, then you’ll have smaller monthly payments with PCP but also a massive lump sum at the end, though the total amount you pay should be the same).

The purpose of PCP is for drivers to get a desirable car with low monthly payments (as the higher the optional final payment is, the lower the monthlies). Regarding the mileage allowance, you wouldn’t ever have to pay an excess mileage charge if you made the optional final payment to buy the car. Therefore, a low mileage allowance means lower monthly payments, but a higher optional final payment and more interest charged overall (as the lower monthly payments mean you’re borrowing more money at any one time than you would be with a higher mileage allowance).

Finance companies nearly always charge more for excess mileage than if you simply went for the equivalent higher-mileage contract - regardless of whether the excess mileage charge is 4p per mile or 30p per mile. If the excess mileage charge is low, it also means that the premium to go for a higher-mileage contract is low.

Based on that kind of comment, don’t trust what the dealer says. They don’t seem to understand the mechanics of finance, or even that someone who makes the optional final payment to buy the car at the end of a PCP would not ever have to pay excess mileage charges, since making the optional final payment makes them the owner of the car, so Renault could never claim a loss from the car having a higher mileage than expected.

Hope that helps.

[RoVoFob]

timbo999 said:

If you want to own the car at the end, you want the balloon payment to be as SMALL (i.e. large annual mileage) as possible as that reduces the amount of interest you pay overall.

Far better to simply go for Hire Purchase (assuming the same APR and deposit contribution discounts).

[griffter]

timbo999 said:

If you want to own the car at the end, you want the balloon payment to be as SMALL (i.e. large annual mileage) as possible as that reduces the amount of interest you pay overall.

This.

I went through the same with a Megane last year. In fact they couldn’t understand their own figures but that’s a separate story.

[RoVoFob]

griffter said:

This.

I went through the same with a Megane last year. In fact they couldn’t understand their own figures but that’s a separate story.

It makes more sense to simply go for Hire Purchase. As there is no balloon payment with Hire Purchase, you pay off the finance balance faster - which means you pay less in interest than you would with PCP (regardless of how low or high balloon payment is).

[griffter]

That’s true but with the Renault PCP at the time there was £1000 deposit contribution and two free services. I paid off all but £100 of the finance (to keep the service package alive) and was better off for the PCP.

[RoVoFob]

griffter said:

That’s true but with the Renault PCP at the time there was £1000 deposit contribution and two free services. I paid off all but £100 of the finance (to keep the service package alive) and was better off for the PCP.

Renault offers deposit contribution discounts with its Hire Purchase options, too.

One thing to be wary of with Renault, is that they offer multiple PCP offers, some with 0% APR and others with 4.9% APR, where interest is charged, but this is often balanced out/outweighed by having a larger deposit contribution. The way Renault does this is completely misleading and shows how meaningless APR figures are when deposit contributions are available.

For those after the lowest overall cash price, the example Clio offer I found on the Renault site had 0% APR PCP finance with a £750 deposit contribution, 4.9% APR PCP with a £2,000 deposit contribution and 0% APR Hire Purchase with a £500 deposit contribution.

Costs if you take the finance and then cancel immediately (24-month contract, £3,000 deposit and 6,000-mile-per-year allowance):
PCP (0% APR): £17,350 to cancel finance and buy car
PCP (0% APR): £17,350 to complete finance contract and make optional final payment to buy car

PCP (4.9% APR): £16,100 to cancel finance and buy car
PCP (4.9% APR): £17,176 to complete finance contract and make optional final payment to buy car

HP (0% APR): £17,600 to cancel finance and buy car
HP (0%APR): £17,600 to complete finance contract (at this stage you own the car)

In this case the HP option had a lower deposit contribution than the 0% APR PCP option so it’s a little more expensive than that, but regardless of this, the 4.9% APR option is the cheapest, both if you cancel the finance immediately or complete the contract…

As always with finance, get like-for-like contracts to determine which option is the best value for you…

[AlexNJ89]

This is all very helpful guys, thank you!