Finance - flat vs APR. Help needed.

[dapearson]

Maz_uk said:

Used PCPs rarely make sense unless the deal is subsided heavily.......

I would look at a new one, and reduce your deposit.

At £6k deposit you stand to lose £6k if your car isn't worth gfv or you choose not to buy it.

A new one with less deposit would make more sense.

I really don't see the argument here.

By putting a decent deposit in, the overall interest paid is reduced and the total repaid between the purchase price (minus deposit) and the GFV is reduced.

It doesn't matter whether you put in a tiny deposit and have higher monthlies, or a massive deposit and very small monthlies, the capital repaid is the same and the GFV at the end is the same.

Either way, most of the money paid into the car over the period evaporates.

Personally i'd find it more comforting to have more money in the car from day 1 and try to start off with +ve equity.

[LaurasOtherHalf]

With bmw it simply doesn't seem to make sense to buy second hand on finance, as others have said with the mini they'll be giving them away in a few months time.

We're doing the same for my wife though looking at a countryman/X1 & I'm convinced when the new X1 comes out later this year that'll be to buy the pre facelift model as they'll subsidise it so much.

[dapearson]

LaurasOtherHalf said:

With bmw it simply doesn't seem to make sense to buy second hand on finance, as others have said with the mini they'll be giving them away in a few months time.

We're doing the same for my wife though looking at a countryman/X1 & I'm convinced when the new X1 comes out later this year that'll be to buy the pre facelift model as they'll subsidise it so much.

It's the paceman she's looking at. They've only been out for a year. It'll take them a few years yet to facelift them.

Even then, it's not a bad deal really. It's 20% off list price and only 8 months old.

[rfoster]

dapearson said:

Even if it's 4.25%, how on earth does a £12500 sum borrowed result in an interest charge over the period of £3200?!

3200/12500 = 25.6% / 4 = 6.4%

I've read that the flat rate is applied twice to the balloon payment. Is that so?

It's easy to calculate a flat rate on a hire purchase agreement (without balloon payment). For example, borrowing £12,500 over 48 months at 4.25% flat is calculated as:

£12,500 x 4.25% = £531.25
£531.25 x 4 (years) = £2,125.00
£2125 + £12,500 = £14,625
£14,625 / 48 (months) = £304.69

However with a lease purchase or PCP, it's considerably more difficult to work this out in a similar manner because you are not amortising the loan over the period (i.e. you're not paying off all the capital over the period) - instead deferring a lump sum of the capital to the end of the term. Yes, you'll pay more interest overall on a PCP agreement rather than a hire purchase. Worth looking at a 5 year hire purchase too.

[TVR1]

To answer the OP. The static rate. (I.e. The rate charged on the guaranteed value) is typically double the flat rate. In fact a lender could use whatever figure they feel like and still not have to disclose it as part of the interest rate disclosure.

[P-Jay]

Flat rate was always a bullst term when I worked in finance, you could say anything and call it the 'flat rate' whereas APR had to be completely accurate and based an a very regulated calculation - frankly if a dealer is talking about flat rates in 2014 they're trying one on.

Even if you use the 'usual' method of calculating flat rates it doesn't represent a decent indication of cost when balloons or AFVs are involved.

They have their place, but ultimately whenever you piss about with balloons or AFVs or whatever to make the unaffordable - affordable you'll pay a heavy premium.

[Shurv]

1/ Ask for a lower rate. They CAN do better than 9.1% APR. Dealers make money from finance, they can and do add a margin. There is a margin in the rate they have quoted you.
2/ PCP's work best if you want to change the car every 3 years,so if you plan to pay the gfv and keep it at the end, you are likely to be better off with a 4 or 5 year personal loan ( best buy APR's 5.3%)The dealer could offer HP for similar best buy rates if they shop around for the finance.Flat rates of 2.75% are available from independent finance providers to the dealer.
3/ PCP's also work better ( if you plan to change at 3 years) with a small deposit, then the swap into the next car will be a similar deal ( small deposit)
4/ If you sink your £6k into the deal, you won't see it again.

[LuS1fer]

I'm always amazed that despite loans being varied APRs, the actual cash difference on the loan total tends to be relatively small so i don't sweat it, just look at the cash going out.

[dapearson]

Thanks for the info.

I asked to speak to the business manager for an explanation of how it's calculated and how 3.25% results in such a high charge. His best effort was "the computer does it"!

In the end we told them to shove it. We've gone for a lease on an M135 instead. The cost over 2 yrs is the same as the paceman, with free VED, no ties at the end and a brand new car so we get to experience that "new car" thing.

We're selling her current car to a trader for simplicity. The money from that will go in the bank and "earn" £400 in interest offset against the mortgage.

[dapearson]

What shocked me was what i found out at the mini dealer. Apparently 70-80% of their sales are via PCP. And of those, most people put in only a £500-£1000 deposit.

[miln0039]

PCP is the way a lot of people want to go now - and primarily because you can get into a new car for a relatively low value relative to the capital.

Glad you're sorted, and very pleased you got the M135i - enjoy!

[Engineer1]

dapearson said:

What shocked me was what i found out at the mini dealer. Apparently 70-80% of their sales are via PCP. And of those, most people put in only a £500-£1000 deposit.

Because generally they are structured to take the old car as the deposit be it the old shed worth 1K or the equity in the previous deal, a big deposit on a pcp just means you won't be able to replace with a similar car at the end because lets be honest here if you are buying on pcp you don't have masses of spare cash to fund the next deposit as that money is spent on holidays and other fun stuff.

[clarkey]

A flat rate of 3.25% should give you monthly payments of something like £140. Quite a difference over 4 years!

[dapearson]

clarkey said:

A flat rate of 3.25% should give you monthly payments of something like £140. Quite a difference over 4 years!

EXACTLY! We were quite some way into discussions about it before i managed to get them to quote me the APR. I was surprised when i heard it because all along i'd been told we were getting a preferential rate, reduced from 4.9% to 3.25%. That's why we stuck with it for for a while and went to the trouble of test driving, etc.

It was only when i got the business manager to actually send me the finance documents that i realised that the actual effective interest rate was just over 8%. I felt lied to and deceived. Like someone said earlier, anyone that quotes flat rates is surely hiding something.

Anyway. No big deal. The deal on the 135 is very good and we get to sit on the money from the wife's car for a couple of years.

I really don't like the idea of PCP. Yes it allows you to buy a more expensive car than you can really afford, but you're then at the mercy of the dealers once the term is up, hoping that the value is higher than the GFV so that you can get something else with that equity. I couldn't live like that. Our plan was to pay it off within 18 months to minimise the interest charges, hence the higher deposit.

It was shocking to find out that the new car market is driven so much by people kicking the can down the road!! I had no idea about it because we've never had finance on a car before!