First time finance - sense check please!
Discussion
All, I could do with a sense check please.
Just reserved a used car and thanks to this forum I was prepared for the GAP, paint protection and finance routine.
What I didn’t expect, having already got £500 off the price, was to be offered finance- take it or leave it, no pressure- with £1000 deposit contribution. This is on a car costing under £15k.
I can’t see a reason not too, but here are the numbers so you can see what’s what:
Cash price: £14644
Deposit inc. part ex: £7300 (max allowed)
Credit: £7344
APR: 9.9%
Term: 36 months
Scenario A: The guy set the annual mileage as high as possible (25k) to reduce the final repayment to £5267
Monthly payment: £109.24
Now here’s the curve ball. The finance guy used his calculator, and I followed his reasoning, and he produced the following total interest payable:
A: £850.74
But the computer-generated finance document I have for scenario A (to read - not yet signed) says “interest charges” £1850.74
He couldn’t understand the £1k difference and is going to call the finance company to enquire. Suspiciously it is exactly £1k higher than he thinks it should be and the deposit contribution is £1k...
Have we missed something obvious? He thought the label of the entry on the document “interest charges” must be wrong but it seems a bit weird to lump the interest and the deposit contribution together at all - let alone call it the wrong thing!
He assured me he’ll get to the bottom of it but I’m obviously reluctant to sign documentation I don’t understand...
Second question. He quoted for an alternative scenario:
Scenario B: If the annual mileage reflects my actual usage (10k) the final repayment increases to £7k something.
Monthly payment: £67.26.
Total interest payable is about £1050 due to higher guaranteed final value. Apart from the increased interest payable, is there a reason not to?
Finance can be paid off early no penalty.
So what may influence my decision when to pay off the finance is that included in the finance is 2 services as long as the finance is still in place. The service department put the value of the two services as £279 (£169 then £110) and they would be used after 6 and 18 months (based on service schedule and my usage).
By my reckoning even in scenario A I’d be out of pocket taking both services assuming £850 in interest over a 36 month term. The finance guy said the profile of interest vs capital wasn’t straightforward but assume 50% interest would be paid in 18 months, so ~£425 for £279 worth of “free” services. The first service (£169) is due in 6 months so I might just be quids in getting that and then paying off.
My thoughts are keep it simple - take the finance, scenario A, and pay off ASAP. Forget the “free” servicing. Do you agree that is the best value option?
All thoughts appreciated. I’ve never taken finance but I’m beginning to see how people get sucked in! Thanks...
Just reserved a used car and thanks to this forum I was prepared for the GAP, paint protection and finance routine.
What I didn’t expect, having already got £500 off the price, was to be offered finance- take it or leave it, no pressure- with £1000 deposit contribution. This is on a car costing under £15k.
I can’t see a reason not too, but here are the numbers so you can see what’s what:
Cash price: £14644
Deposit inc. part ex: £7300 (max allowed)
Credit: £7344
APR: 9.9%
Term: 36 months
Scenario A: The guy set the annual mileage as high as possible (25k) to reduce the final repayment to £5267
Monthly payment: £109.24
Now here’s the curve ball. The finance guy used his calculator, and I followed his reasoning, and he produced the following total interest payable:
A: £850.74
But the computer-generated finance document I have for scenario A (to read - not yet signed) says “interest charges” £1850.74
He couldn’t understand the £1k difference and is going to call the finance company to enquire. Suspiciously it is exactly £1k higher than he thinks it should be and the deposit contribution is £1k...
Have we missed something obvious? He thought the label of the entry on the document “interest charges” must be wrong but it seems a bit weird to lump the interest and the deposit contribution together at all - let alone call it the wrong thing!
He assured me he’ll get to the bottom of it but I’m obviously reluctant to sign documentation I don’t understand...
Second question. He quoted for an alternative scenario:
Scenario B: If the annual mileage reflects my actual usage (10k) the final repayment increases to £7k something.
Monthly payment: £67.26.
Total interest payable is about £1050 due to higher guaranteed final value. Apart from the increased interest payable, is there a reason not to?
Finance can be paid off early no penalty.
So what may influence my decision when to pay off the finance is that included in the finance is 2 services as long as the finance is still in place. The service department put the value of the two services as £279 (£169 then £110) and they would be used after 6 and 18 months (based on service schedule and my usage).
By my reckoning even in scenario A I’d be out of pocket taking both services assuming £850 in interest over a 36 month term. The finance guy said the profile of interest vs capital wasn’t straightforward but assume 50% interest would be paid in 18 months, so ~£425 for £279 worth of “free” services. The first service (£169) is due in 6 months so I might just be quids in getting that and then paying off.
My thoughts are keep it simple - take the finance, scenario A, and pay off ASAP. Forget the “free” servicing. Do you agree that is the best value option?
All thoughts appreciated. I’ve never taken finance but I’m beginning to see how people get sucked in! Thanks...
A straight repayment loan (i.e. with no balloon final payment) of £7344 over three years at 9.9% will cost you £1122 in interest. If there is a balloon to be paid on the end, this will be higher as that attracts interest as well.
So, to me, it looks like the dealer is wrong not the finance company.
Edited to add - its easy to work out - 36x£109.24=£3931.20
Add in the final payment £3931+£5267=£9198
Take away the loan value £9198-7344=£1854... that's how much interest there is... I think the dealer is subtracting the deposit contribution from it for some reason.
So, to me, it looks like the dealer is wrong not the finance company.
Edited to add - its easy to work out - 36x£109.24=£3931.20
Add in the final payment £3931+£5267=£9198
Take away the loan value £9198-7344=£1854... that's how much interest there is... I think the dealer is subtracting the deposit contribution from it for some reason.
Edited by timbo999 on Friday 17th January 15:22
Timbo's figures are correct and work out at about 7% flat / 14% APR
Presumably the dealer is using the increased finance commission to fund the deposit contribution and the customer deposit is actually only £6300?
It's a badly thought out offer though, because the customer will pay back the value of the deposit contribution and servicing in interest.
If you were intending to pay cash then I'd either not bother with the deal or take the deal and cancel it after a month or so.
Cancelling after a month will ensure that your deposit contribution is locked in. If you stay in the agreement long enough to benefit from the "free" servicing then you will have effectively paid back your gains in interest over the period.
No need to tell the dealer what your intentions are.
Presumably the dealer is using the increased finance commission to fund the deposit contribution and the customer deposit is actually only £6300?
It's a badly thought out offer though, because the customer will pay back the value of the deposit contribution and servicing in interest.
If you were intending to pay cash then I'd either not bother with the deal or take the deal and cancel it after a month or so.
Cancelling after a month will ensure that your deposit contribution is locked in. If you stay in the agreement long enough to benefit from the "free" servicing then you will have effectively paid back your gains in interest over the period.
No need to tell the dealer what your intentions are.
All, thanks for your time and input.
ZX10R thanks, that confirms my thoughts and that I can reflect and act even after taking it.
Chrisgr31 yes good idea! I was told there may be a minimum outstanding loan requirement to maintain the finance, but if so and depending what it is your idea could work well! If I take it, I’ll find out.
timbo999 there is a balloon. Sticking with scenario A the balloon is £5267. Because the interest on this amount will be charged over 3 years, the total interest payable will indeed be higher than if £7344 capital were to be repaid over the 3 years as well as interest. I wonder if you’ve hit the nail on the head. If your figure of £1122 is based on repaying £204 capital each month, then clearly leaving £5267 outstanding for 3 years will result in higher interest charge. I think you might be right and (now I think about it) I seem to recall finance guy deducting the deposit contribution from the loan value, but of course it had already been counted in the deposit- hence double counting!
Wooda80 your presumption is correct, although it is the manufacturer (Renault) who provide the incentives hence (so it appeared) the dealer being ambivalent about whether I took it or not... I think even at £1850 interest it makes sense to take the deal, pay off early and benefit from the £1000. Investigate whether I can pay off all but a token about to keep the servicing as above.
drgoatboy & Chrisgr31 thanks, I did ask about APR but was told it is what it is. I have already “borrowed” the money against my mortgage at 2.39 fixed and was intending to use that until I got sucked in!
It’s back to the dealer today so I will update in due course. I expect I’ll take the finance for the £1000 whatever the total interest payable because as you have helpfully confirmed I can of course either withdraw within 14 days or pay off early.
Cheers all
ZX10R thanks, that confirms my thoughts and that I can reflect and act even after taking it.
Chrisgr31 yes good idea! I was told there may be a minimum outstanding loan requirement to maintain the finance, but if so and depending what it is your idea could work well! If I take it, I’ll find out.
timbo999 there is a balloon. Sticking with scenario A the balloon is £5267. Because the interest on this amount will be charged over 3 years, the total interest payable will indeed be higher than if £7344 capital were to be repaid over the 3 years as well as interest. I wonder if you’ve hit the nail on the head. If your figure of £1122 is based on repaying £204 capital each month, then clearly leaving £5267 outstanding for 3 years will result in higher interest charge. I think you might be right and (now I think about it) I seem to recall finance guy deducting the deposit contribution from the loan value, but of course it had already been counted in the deposit- hence double counting!
Wooda80 your presumption is correct, although it is the manufacturer (Renault) who provide the incentives hence (so it appeared) the dealer being ambivalent about whether I took it or not... I think even at £1850 interest it makes sense to take the deal, pay off early and benefit from the £1000. Investigate whether I can pay off all but a token about to keep the servicing as above.
drgoatboy & Chrisgr31 thanks, I did ask about APR but was told it is what it is. I have already “borrowed” the money against my mortgage at 2.39 fixed and was intending to use that until I got sucked in!
It’s back to the dealer today so I will update in due course. I expect I’ll take the finance for the £1000 whatever the total interest payable because as you have helpfully confirmed I can of course either withdraw within 14 days or pay off early.
Cheers all
Chrisgr31 said:
If going for the outright purchase worth checking your bank. I have just borrowed £20k for my replacement car 3.5% APR
This.I'm potentially looking to get a car this year and have been looking at personal loans. There are a few lenders offering 2.9% if you borrow between £15,000 - £20,000
DaveH23 said:
This.
I'm potentially looking to get a car this year and have been looking at personal loans. There are a few lenders offering 2.9% if you borrow between £15,000 - £20,000
can get 2.8 hereI'm potentially looking to get a car this year and have been looking at personal loans. There are a few lenders offering 2.9% if you borrow between £15,000 - £20,000
https://www.moneysavingexpert.com/loans/cheap-pers...
So...it is £1850 interest charges. The finance guy didn’t quite explain it in terms of double counting but that is what happened.
It was very helpful to be able to turn up confident as to what had happened and readily accept the higher figure thanks.
Long story short I collect the car next Saturday, will investigate:
A) paying down the balance to a minimum to keep the finance and make the servicing cost effective
B) getting it serviced straight away (6 months ahead of schedule) then pay off the finance
C) pay off the finance after a month
Thanks!
It was very helpful to be able to turn up confident as to what had happened and readily accept the higher figure thanks.
Long story short I collect the car next Saturday, will investigate:
A) paying down the balance to a minimum to keep the finance and make the servicing cost effective
B) getting it serviced straight away (6 months ahead of schedule) then pay off the finance
C) pay off the finance after a month
Thanks!
griffter said:
All, thanks for your time and input.
ZX10R thanks, that confirms my thoughts and that I can reflect and act even after taking it.
Chrisgr31 yes good idea! I was told there may be a minimum outstanding loan requirement to maintain the finance, but if so and depending what it is your idea could work well! If I take it, I’ll find out.
timbo999 there is a balloon. Sticking with scenario A the balloon is £5267. Because the interest on this amount will be charged over 3 years, the total interest payable will indeed be higher than if £7344 capital were to be repaid over the 3 years as well as interest. I wonder if you’ve hit the nail on the head. If your figure of £1122 is based on repaying £204 capital each month, then clearly leaving £5267 outstanding for 3 years will result in higher interest charge. I think you might be right and (now I think about it) I seem to recall finance guy deducting the deposit contribution from the loan value, but of course it had already been counted in the deposit- hence double counting!
Wooda80 your presumption is correct, although it is the manufacturer (Renault) who provide the incentives hence (so it appeared) the dealer being ambivalent about whether I took it or not... I think even at £1850 interest it makes sense to take the deal, pay off early and benefit from the £1000. Investigate whether I can pay off all but a token about to keep the servicing as above.
drgoatboy & Chrisgr31 thanks, I did ask about APR but was told it is what it is. I have already “borrowed” the money against my mortgage at 2.39 fixed and was intending to use that until I got sucked in!
It’s back to the dealer today so I will update in due course. I expect I’ll take the finance for the £1000 whatever the total interest payable because as you have helpfully confirmed I can of course either withdraw within 14 days or pay off early.
Cheers all
Depending on the remaining sum owed on your mortgage, I would have thought increasing borrowing on it would be a very expensive way of financing a car, even if your mortgage rate is set at 2.4%.ZX10R thanks, that confirms my thoughts and that I can reflect and act even after taking it.
Chrisgr31 yes good idea! I was told there may be a minimum outstanding loan requirement to maintain the finance, but if so and depending what it is your idea could work well! If I take it, I’ll find out.
timbo999 there is a balloon. Sticking with scenario A the balloon is £5267. Because the interest on this amount will be charged over 3 years, the total interest payable will indeed be higher than if £7344 capital were to be repaid over the 3 years as well as interest. I wonder if you’ve hit the nail on the head. If your figure of £1122 is based on repaying £204 capital each month, then clearly leaving £5267 outstanding for 3 years will result in higher interest charge. I think you might be right and (now I think about it) I seem to recall finance guy deducting the deposit contribution from the loan value, but of course it had already been counted in the deposit- hence double counting!
Wooda80 your presumption is correct, although it is the manufacturer (Renault) who provide the incentives hence (so it appeared) the dealer being ambivalent about whether I took it or not... I think even at £1850 interest it makes sense to take the deal, pay off early and benefit from the £1000. Investigate whether I can pay off all but a token about to keep the servicing as above.
drgoatboy & Chrisgr31 thanks, I did ask about APR but was told it is what it is. I have already “borrowed” the money against my mortgage at 2.39 fixed and was intending to use that until I got sucked in!
It’s back to the dealer today so I will update in due course. I expect I’ll take the finance for the £1000 whatever the total interest payable because as you have helpfully confirmed I can of course either withdraw within 14 days or pay off early.
Cheers all
Edited by anonymous-user on Sunday 19th January 10:59
sotonjoe said:
Depending on the remaining sum owed on your mortgage, I would have thought increasing borrowing on it would be a very expensive way of financing a car, even if your mortgage rate is set at 2.4%.
If he's intending to overpay on his mortgage such that the 'car loan' element of it is paid off in three years, then no, its an extremely cheap way of financing a car.Edited by sotonjoe on Sunday 19th January 10:59
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