Discussion

No, and be careful there is one on the Internet that doesn't add in the double interest on the balloon payment.

The only other ones I have seen want you to choose a model and give them your details so they can contact you.

If you don't find what you want email me. Having just gone through working all this out I can probably give you a formula. Though that is not as easy as using an online calculator obviously.

Manks

Manks will quote the FSA at you!

OP

Just build a spreadsheet

the only tricky bit is the APR calculation

You need to build a column of cash flows (ie -20000 for the 20000 car loan, then +ve amounts for each monthly payment and the balloon at the end).

Then apply the IRR function to the cashflows. Then use the IRR to calc APR.

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Manks said:

Dr Jekyll said:

Manks said:

No, and be careful there is one on the Internet that doesn't add in the double interest on the balloon payment.

Manks

If loan A means owing an average of £500 for 12 months (EG because £1000 is paid off in instalments), and loan B means owing an average of £1000 for the same period (EG because it's a one off balloon payment), then for the same interest rate I would expect to pay twice as much interest on loan B.

Not because interest is paid twice, but because I am effectively borrowing twice as much money.

If you insist on regarding the interest rate as half the true rate then you have to double it to get the right figure, but that is simply a demonstration that your figure was wrong in the first place.

Dr Jekyll said:

Manks said:

Dr Jekyll said:

Manks said:

No, and be careful there is one on the Internet that doesn't add in the double interest on the balloon payment.

Manks

If loan A means owing an average of £500 for 12 months (EG because £1000 is paid off in instalments), and loan B means owing an average of £1000 for the same period (EG because it's a one off balloon payment), then for the same interest rate I would expect to pay twice as much interest on loan B.

Not because interest is paid twice, but because I am effectively borrowing twice as much money.

Dr Jekyll said:

If you insist on regarding the interest rate as half the true rate then you have to double it to get the right figure, but that is simply a demonstration that your figure was wrong in the first place.

It is not a question of me "regarding" the interest rate as half the true rate. I am using the figure that will inevitably be quoted by the dealer in order to obtain the right answer.Manks

Manks said:

It is not a question of me "regarding" the interest rate as half the true rate. I am using the figure that will inevitably be quoted by the dealer in order to obtain the right answer.

Manks

No, it will be quoted by the dealer to make the rate sound lower than it really is. The fact that you have to double it to get the right answer is a clue.Manks

Dr Jekyll said:

Manks said:

It is not a question of me "regarding" the interest rate as half the true rate. I am using the figure that will inevitably be quoted by the dealer in order to obtain the right answer.

Manks

No, it will be quoted by the dealer to make the rate sound lower than it really is. The fact that you have to double it to get the right answer is a clue.Manks

Manks

Edited by Manks on Sunday 7th March 14:18

Manks said:

Oh for sure. But the fact remains that you need to apply the flat rate once to the amortised part of the loan and twice to the deferred payment or bubble. Which is what I said and which you apparently disagreed with.

Manks

It's the same point as we are discussing on the other thread - if you use the 'proper' IRR calculation then you don't need to charge the (wrong) interest rate twice to get the right answer!!Manks

Sidicks

sidicks said:

Manks said:

Oh for sure. But the fact remains that you need to apply the flat rate once to the amortised part of the loan and twice to the deferred payment or bubble. Which is what I said and which you apparently disagreed with.

Manks

It's the same point as we are discussing on the other thread - if you use the 'proper' IRR calculation then you don't need to charge the (wrong) interest rate twice to get the right answer!!Manks

Sidicks

Manks

sidicks said:

Manks said:

But if you do it your way, you get the WRONG answer as you have already demonstrated.

Manks

No you don't!!Manks

Why do you think you get the wrong answer?

Sidicks

sidicks said:

Ok, as has already been posted previously (hundreds of times), flat rate is meaningless, you need to use the APR to calculate the monthly payments, as this takes into account all fees etc.

With a £10k car and £1k deposit, there is £9k to finance. Effectively there are 2 parts to this agreement:

- A £5000 loan (residual) on which interest is paid but no capital

- A £4000 loan which is re-payable over 3 years

Using an APR of 8.8% (equivalent to a monthly rate of 0.71%):

The interest on the £5k loan is £35.27 per month

The interest and capital repayment on the £4k loan is £126.20

This leads to a total premium of £161.47

Whereas "RS6 see you", who is a car finance broker, inputted the figures into his PCP calculator and obtained the figure: £170.70 which also tallies with the answer calculating it manually.With a £10k car and £1k deposit, there is £9k to finance. Effectively there are 2 parts to this agreement:

- A £5000 loan (residual) on which interest is paid but no capital

- A £4000 loan which is re-payable over 3 years

Using an APR of 8.8% (equivalent to a monthly rate of 0.71%):

The interest on the £5k loan is £35.27 per month

The interest and capital repayment on the £4k loan is £126.20

This leads to a total premium of £161.47

So, your method has been demonstrated to give the incorrect answer.

But as I have said on the other thread I think it is time for me to draw a line under this. I have a car to wash and enjoy in the sunshine - and you know what it hasn't got any finance on it.

Manks

Edited by Manks on Sunday 7th March 14:31

For the example figures, if you pay £1000 deposit on day one and £170.69 per month with a £5k balloon, the APR is 8.71%.

Amount of loan 10000

admin fees 0

deposit 1000

monthly pmt 170.69

balloon 5000

eoc fees 0

interest rate 5%

no opf payments 36

total repaid 11144.84

total interest 1144.84

rough monthly pmt £170.69

IRR 0.698040092662%

APR 8.71

Manks said:

Whereas "RS6 see you", who is a car finance broker, inputted the figures into his PCP calculator and obtained the figure: £170.70 which also tallies with the answer calculating it manually.

So, your method has been demonstrated to give the incorrect answer.

My number uses the APR, which as you have said is rounded down to the lower 0.1%. So, your method has been demonstrated to give the incorrect answer.

**By definition**the actual IRR (i.e. unrounded APR) will produce the correct answer. I was being a bit lazy when I was using referring to APR rather than IRR.

Given the full cashflows and a simple spreadsheet it is a trivial spreadsheet to tie up with the 'correct' answer.

Sidicks

PS - My car needs a wash too!

I do not make any guarantees over it's accuracy although the model has always been within a few quid of the numbers from dealers quotes that I have had recently.

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