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As an Engineer, some of the finer points of finance are a mystery to me. Could someone explain to me why the monthly repayments quoted by car dealers and online car finance companies are different to those quoted by online APR/repayment calculators or loan companies for the same APR, term and amount financed?
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"The APR is a measure of the cost of each credit agreement, taking into account all the charges made under the agreement."
Car dealers and finance houses charge admin fees, document release fees and other such things which they hide in small print - sometimes £200 or so and this needs to be taken into account.
Banks geenrally don't add such fees so their loans are usually cheaper.
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As an Engineer, some of the finer points of finance are a mystery to me.
I find that an astonishing statement. Engineering [unless it has been dumbed down by the new "Uni"s that have sprouted up around the UK] requires a much higher level of Mathematics than "Chartered Accountancy".
the monthly repayments quoted ..... for the same APR, term and amount financed?
That just simply cannot be true, if "the same APR, term and amount financed" are input in the equation. There is only one equation for the calculations, so there is something wrong somewhere.
Can you give examples of the online dealers/finance-companies and the web sites of the other calculators you have used, where you get the "different" results for the same input?
Edited by jbif on 08/07/2008 at 12:01
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Sorry, I have probably not done the "Engineers" cause much good here have I? I apologise to all my fellows out there. Rest assured I am not new Uni, I am in my 40's and I am a proper Engineer. I have no problem with the maths, it is more the way of working of the financial world that I have trouble with, not the up front calculations. A prime example is the "hidden" costs that have been mentioned which make true comparisons difficult to make. I will get a couple of examples together and post them shortly.
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Rest assured I am not new Uni, I am in my 40's and I am a proper Engineer.
Thank goodness for that!
I will get a couple of examples together and post them shortly.
Look forward to seeing those. After all if the same data is being input, the same output should result. [ It would be understandable if one web site was claiming that the square root of 4 is 2 whereas the other was claiming that it was minus 2. ]
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I think my problem stems from the fact that I am not totally sure how a PCP premium is calculated. Which ever way I try to discover how some repayments are calculated, I am way off the quoted figure. Following is an example for an online PCP quote for a supermini my wife has been considering:
Discounted price £9517, Deposit £1000, Term 36 Months, GFV £5031, APR 8.9%.
This apparently equates to a total payable amount of £11318 and £147 p/m.
Whichever way I play with the figures, I cannot come up with these results.
Figures obtained from my main dealer for the same car seem to work out as I would expect, i.e:
Balance to finance (X). = List price ? Deposit ? GFV.
Total to pay (Y) = X + Interest @ %APR
Monthly repayment = Y/36
If this method is applied to the original online example, we get:
Balance = £9517 - £1000 - £5031 = £3486
Total to pay @ 8.9% APR = £3964 (online calculator)
Monthly payment over 36 months = £110
This is obviously well below the original quoted £147 and would equate to >£1300 hidden fees if correct. Don?t get me wrong, I am not saying that £147 is a bad quote, it is actually one of the cheapest I have found. However, I would be interested to know whether different companies calculate their premiums in different ways.
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You'll probably find that you are still paying interest on the GFV even if you don't repay it as capital. It still forms part of the purchase price, try running the calc again and see what it comes up with.
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I agree with Jonathan. You will still be financing the Final Value.
Balance to finance (X) = Price - Deposit
Total to Pay (Y) = (X) + Interest @ %APR - GFV
There will be a slight complication in that the APR calculators probably assume that you are paying off the whole amount as part of your monthly payments, whereas you in effect have a final balloon payment.
Edited by adverse camber on 08/07/2008 at 17:18
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Easier to split it in two - one as a repayment loan, the other interest only. Add the two monthly payment and that should be accurate.
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hi
playing around with these figures on a online calculator, i can get it to give near those quoted figures.
amount to finance £3486
36 monthly payments @ £147.00
total amount to repay = £5291.92
interest = £1805.92
apr - wait for it 33.81%
so with
deposit £1000
gfv £5031
loan £5291
total = £11322
i wait to be corrected
interest rates not my strongest subject
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Thanks guys. I think the replies have given me an idea of why there are differences. In the case of the dealer quote, the GFV and deposit are subtracted before the interest is calculated so you are not financing the GFV as well. However, the list price is higher and the GFV lower so it evens itself out. I don't think I will get too hung up on how the figures are arrived at, I will just choose the best deal I can find.
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Thanks guys. I think the replies have given me an idea of why there are differences
OK, I will do some quick calculations*:
1. Derivation of £11318
a) 36 x £147 = £5292
b) Deposit = £1000
c) GFV = £5031
d) a+b+c = Total payable amount = £11323 [Close enough to their figure of £11318]
2. Derivation of 8.9% APR
c) GFV = £5031
d) Present day cash value of £5031 discounted at 8.9% AER = £3896 [assuming annual compounded rate rather than monthly compounded rate].
e) Present day cash price of car = £9517 - £1000 = £8517
f) Amount to finance over 36 months = e - d = £(8517-3896) = £4621
so £4621 financed over 36 months using APR of 8.9% = monthly payment of approx. £147
* Please feel free to correct my figures if I have made any errors.
Exact figure will depend on whether the first monthly contribution is paid on the 1st day of the month or at the end of the month from counting from the day of the purchase.
Calculators:
www.themortgagebroker.co.uk/calculators/calculator...r
www.morley-computing.co.uk/resources/scripts/javas.../
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Based on you borrowing 8517, and paying back 35*£147 and a final payment of £5178 (being the 36th payment of £147 + the GFV), the APR would be 9.1%.
If the GFV is not payable until the end of month 37 (rather than with the 36th payment of £147) then the APR would be 8.9%.
I can give you formulas to calculate payments using an interest rate, including with a GFV, but not for the rate - it has to be iterated. The easiest way to do it is to put all the monthly net cash flows in a column of an Excel or similar spreadsheet, and use the IRR function to calculate the period (monthly) interest rate. Then use
APR = (1+monthly rate%)^12-1
to calculate the APR (effective annual rate).
It looks as if the APR is correctly quoted, allowing that you have probably rounded the payment a bit and I have had to guess at the exact timing of payments. Earlier posters are correct, the APR must take into account interest on the deferred payment, otherwise it would not be calculated in accordance with the regulations.
Edited by Manatee on 08/07/2008 at 21:32
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whichever way you look at it , borrowing money to finance a car is a very costly business .
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It is when using PCP schemes! On outright purchase it can be very competitive depending how desperate the dealer is for a sale.
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It is when using PCP schemes!
I've looked at PCPs a couple of times but decided against them, but it rather depends on your circumstances.
For a given flat rate of interest the APR always looks higher with PCPs because you're financing the whole GFV for the whole term. However if you buy any other way then you're still financing the residual value up front - ie you've got to pay for the whole car in anticipation / hope of getting something back when you sell it. If you put the whole price on HP then the APR looks lower as the balance is decreasing.
A big advantage of a PCP is that the GFV is guaranteed - if you can get a deal with a high GFV (perhaps subsidised by a manufacturer) then you could end up saving money that you would otherwise have lost when you come to change the car.
I still think it's best to look at all the different ways of financing - PCP. HP, Personal loan, adding to mortgage, paying from savings etc - in real pound notes and see what they're actually going to cost you in total over, say, a 3 year period.
Edited by Bill Payer on 08/07/2008 at 23:42
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Yes, from an investment point of view cars are generally a pretty bad prospect even before you add interest ;-)
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