I've just looked at a manufacturers website who claim 4.9% APR
List price of the car is 27905
Deposit 5100
Dealer contribution 1621
Leaving a balance of 21184
from which 12600 is the payment deferred to 3 years
This means they are really lending you about 8500 with the bulk being deferred to the end of the lease period which you then have to finance or refinance.
The quoted Total charge for credit is 2455
That's about 28.5% by my calculations.
Since when does 4.9%APR over 3 years add up to 28.5% ?
I've noticed a few manufacturers doing this in the back of car magazines.
How do they get away with it ?
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APR is meant to include costs for the loan too apart from interest isn;t it. But I think they cheat.
Worse is we bought a car years ago via Motorpoint and their figures for finance were actually good so we used them. It was only later we found it was HP and not a loan (didn't read the really small print!) but the loan firm (Lloyds) let me settle straight away and take out a lot better deal.
Naughty car sellers...
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You've forgotten about the interest on the 12600. I'll do the sums and report, but I expect it's about right. How many payments? 36 plus the residual, or 35?
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gmac, with a user name like yours you should be able to work this out (General Motors Acceptance Corporation?)
For 36*306.64 plus 12600 with the last payment, I get 4.9% effective rate (APR). Using 299 the charges are less than 2455 and the APR is nearer 4.3% so maybe there's a fee in there somehere as well, which they would have to include in the Total Charge for Credit and the APR.
If the cash price is a good one (inflated cash prices are a good place to put 'charges' outside the APR) then the finance part of the deal is arguably subsidised - just make sure you are not paying an inflated price for the car - assuming 27905 is list price on the road, and 1621 is effectively the discount, how does that compare with the best price you can get elsewhere?
Incidentally, I don't agree with Tron that you should ask for the flat rate as well as the APR - it's the flat rate that's misleading, flat rate is meaningless for loans with balloon payments. Perhaps Tron meant the opposite?
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Thanks Manatee.
I still don't think I would be taking out such a finance agreement. Although you may calculate it to 4.9%, the way I look at it, they are still really only lending me 8.5k with a deferred amount at the end of 12.5k which I still need to service at month 36. I am paying around 2.5k for a 8.5k loan with 12.5k deferred.
I know there is a black art to the finance calculations. In the past I have written such software for finance houses who worked in the less than prime end of the market with three figure interest rates...
Reminds me of the three men renting a hotel room maths problem which depending on how you present the figures gives you two solutions. On paper both are correct but only one is logically correct.
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You said it yourself gmac - the loan is 21,184, not 8,500. The 12600 is just a repayment, and pushing the timing of it out to 3 years, rather than spreading the repayments equally over 36 months, just increases the interest charge, APR being equal.
That's why I don't like PCPs. They are fantastic for the trade, because if the customer doesn't have the balloon payment, they have to return the car and the only way to get a new one is another PCP because they have equity for a deposit to keep the payments low enough.
By way of example, the 21,184 repaid at 4.9% APR over three years would be £633 per month, but the total charges would only be £1600. Re-organise this to 36 payments of £307 plus an additional 12,600 with the 36th, and the APR is still 4.9% but the charges are over £800 higher.
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the loan is 21,184, not 8,500. The 12600 is just a repayment
An alternative way to look at it is as I explained in these two threads:
www.honestjohn.co.uk/forum/post/index.htm?t=65258&...e
www.honestjohn.co.uk/forum/post/index.htm?t=65006&...e
In the case of gmac's figures above:
a) repayment at end of year 3 = £12600
b) Present day cash value of £12600 discounted at 4.9% AER = £10916 [assuming annual compounded rate rather than monthly compounded rate].
c) Present day price of car after deposit etc. = £[27905 - 5100 - 1621] = £21184
d) Amount to finance over 36 months = c - b = £[21184 -10916] = £10268
so £10268 financed over 36 months using APR of 4.9% = monthly payment of approx. £307 if paid on last day of each month, or £306 if first payment taken at beginning of month.
[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..._
calculator/
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APR or annual percentage rate. A standard method of calculating how much the loan will cost you over the full period of the loan. The APR reflects the total charge for credit and is different to the flat rate.
Flat rate The monthly interest rate charged. Watch out for flat rates being quoted instead of APRs.
The flat rate does not reflect the true cost of the loan and it's usually around half the APR rate, so it sounds cheaper and it is why it is so often quoted - be careful of this one.
Always ask for the 'flat' as well as the 'APR' rate whenever you are looking at buying anything on finance.
Always seek independent financial advice before signing any HP or loan come finance agreement if you are unsure exactly or don't understand certain elements of the contract because once you have signed - they have you.
Other factors are:
PCP or Personal Contract Purchase. A personal finance scheme which defers part of the payment for the car until the end of the loan, when the car is usually traded in.
A deposit is usually required up front, plus a final "balloon" payment if you wish to own the car at the end of the finance agreement. There are also often additional fees such as an 'option to purchase fee' to be paid before the car is yours.
Residual value (or guaranteed minimum future value) Anticipated value of the car at the end of the finance agreement. Only applicable to PCPs.
HP or Hire Purchase.
With hire purchase, the finance provider owns the car, and the customer buys it over the agreed and fixed period. With HP, a deposit may be needed, and the finance is generally secured on the car itself. Again, there may be an additional fee to be paid before the car is yours.
Edited by Tron on 08/09/2008 at 21:08
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Manatee got it above when he said you forgot to add the %rate to the outstanding balance to be paid at the end of year 3.
Most people forget that they are still being charged interest on that amount - they think it is an interest free loan or not part of the deal. Allot of people get sucked into that thinking they are getting a good deal when they are not.
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Yes, the loan is 21 odd k because you're getting the benefit of the 12600 during the time with the car. The finance company has the money tied up in the car and needs to charge you interest on that portion because it cannot do anything with that money (i.e invest it to earn interest for themselves) untill you give it back to them at the end of the lease by either paying it off or handing the car back.
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A far from unusual New Car Deal (accessed from a link to this very page!) offers a new car for a tempting "299 per month". The conditions are
23295 On the Road price
3295 deposit; 20,000 to finance, as follows:
499 first payment then 59 payments of 299
9000 final payment
APR 4.9% Got all that?
Total cost of interest = OVER 7000 Pounds! In fact, the "299 per month" over the lifetime of the deal works out overall at nearer 500 a month. And I'm guessing a lot of buyers would also need to borrow the initial 3295 deposit, making the final real average monthly nearer TWICE what is advertised.
Credit crunch? It's more like an earthquake.
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>>And I'm guessing a lot of buyers would also need to borrow the initial 3295 deposit,
>>making the final real average monthly nearer TWICE what is advertised.
"they're all out to get me"
No. You're being lent money at 4.9%. That's a pretty good deal in anybody's book.
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