don't understand quote

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Tue 15 Jul 2008 21:56
don't understand quote - davecooper
Can anyone help me figure out how the following PCP quote was calculated?

This is how it appears on the quote:

On the road price £9500
Deposit £982.47 (A)
Charges Nil
Amount of credit £8517
Interest £1260.47
Purchase fee £10
Balance payable (including final payment) £9788 (B)
Representing a total amount payable of (A+B) £10770.47
Monthly payments x36 £170
GFV £3658
APR 6.9%

I must point out that this was a reverse engineered quote working back from the monthly payment. What I don't understand is that the total amount payable on £9500 at 6.9% APR is £10511 according to all the APR calculators I have found so why the £10770?
THe quote is a dealer quote for a Mazda 2
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Tue 15 Jul 2008 22:09
don't understand quote - DavidHM
Do the APR calculators allow for a balloon payment? Otherwise on a PCP you end up owing a higher average amount as you repay less capital and therefore pay more interest on the higher outstanding balance - on a typical finance deal over three years you would pay (say) £289 capital and £2 interest in the last month, whereas you would be paying (say) £150 capital and £20 interest in the last month as you would still owe £3,700.

Does this help?
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Tue 15 Jul 2008 22:29
don't understand quote - davecooper
I think so. In simplistic terms, do you mean that because the amount owed does not drop to zero, the interest never drops to zero? i.e. you don't have the benefit of the lower interest later on in the term when the owed amount becomes relatively small.
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Tue 15 Jul 2008 22:31
don't understand quote - DavidHM
You don't have the *full* benefit of it - you pay less interest and more capital at the end of the term, but more interest and less capital than you would if you were paying back the full amount.
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Tue 15 Jul 2008 22:31
don't understand quote - Manatee
Dave,

The APR is correct.

You can check yourself if you have a spreadsheet program.

www.honestjohn.co.uk/forum/post/index.htm?v=e&t=65...6

The cash flows you need to list out are
8517.53
-169.72 (35 of these)
-3837.72 (the GFV+the last 169.72+the 10.00 purchase fee)

Get the spreadsheet to calculate the IRR (period rate), then (1+IRR)^12-1 = APR.

DavidHM is correct - the balloon is what makes the difference. The bigger the balloon, the more £interest you would have to pay for a given APR. Conversely, if balloon =0, then the monthly payments would be higher, but the total interest less.

Edited by Manatee on 15/07/2008 at 22:35

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Tue 15 Jul 2008 22:43
don't understand quote - davecooper
Thanks very much for the help guys. The way the quote is laid out does not make this easy to see. I will play with the spreadsheet as you suggested but I am relieved to know that there are no hidden nasties in there as I am going to agree a similar deal with dealer tomorrow.
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Wed 16 Jul 2008 00:05
don't understand quote - jbif
The way the quote is laid out does not make this easy to see


The way to calculate is as I showed here:
www.honestjohn.co.uk/forum/post/index.htm?t=65006&...e

You say you have reverse engineered your figures above but I presume that the figures you have been given are:
APR 6.9%
O = On the road price £9500
D = Deposit £982.47
C = On the road price £9500 less Deposit £982.47 = O - D = Amount of Credit = £8517
F = Purchase fee = £10
G = GFV £3658


P = Present value of G today at 6.9% AER = £3658/1.069/1.069/1.069 = £2995

So Amount to be financed = C plus F less P = £8517 +£10 - £2995 = £5532

Plug £5532, 6.9%, and 36 months in to
www.morley-computing.co.uk/resources/scripts/javas.../
and you get 36 monthly payments of £170.56
S = sum of 36 monthly payments of £170.56 = £6140.13

Test by reverse engineering:
S + G + D - F = £6140.13 + £3658 + £982.47 - £10 = £10,770

Edited by jbif on 16/07/2008 at 00:07

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