Finance - flat vs APR. Help needed.
Discussion
We're negotiating on a car for my wife.
The vehicle is £18.5k. We're putting down £6k. The GFV of the vehicle after 48 months is £7200.
There is a £150 arrangement fee at the start, added to the first payment.
47 payments of £180.
Final payment assuming we buy it at the end will need to have £150 added to it including the option to purchase fee.
We've been told that the rate is 3.25% flat.
However, the APR is 9.1% and the total interest payable is around £3200.
I can't seem to figure out how on earth the APR is so high given the flat rate.
Any help!?!?
FWIW this is through BMW finance. We've agreed to buy it but no money has changed hands yet and nothing has been signed.
The vehicle is £18.5k. We're putting down £6k. The GFV of the vehicle after 48 months is £7200.
There is a £150 arrangement fee at the start, added to the first payment.
47 payments of £180.
Final payment assuming we buy it at the end will need to have £150 added to it including the option to purchase fee.
We've been told that the rate is 3.25% flat.
However, the APR is 9.1% and the total interest payable is around £3200.
I can't seem to figure out how on earth the APR is so high given the flat rate.
Any help!?!?
FWIW this is through BMW finance. We've agreed to buy it but no money has changed hands yet and nothing has been signed.
Ozzie Osmond said:
This isn't what you want to hear, but you can buy a nice car for £6,000 or so, and it will certainly last you 4 years with maintenance costs very substantially lower than £180 a month (£2,160 p.a!)
My tip would be to buy something German or Japanese with a good reputation and stick a £1,000 dateless number plate on it. Your friends and neighbours won't have a clue whether the Golf (or whatever) is new, old, cheap or expensive. And you'll save yourselves ££ thousands which the wife can spend on clothes.....
I already have a cheap and reliable japanese car - my £900 avensis that i service myself and will run until it dies.My tip would be to buy something German or Japanese with a good reputation and stick a £1,000 dateless number plate on it. Your friends and neighbours won't have a clue whether the Golf (or whatever) is new, old, cheap or expensive. And you'll save yourselves ££ thousands which the wife can spend on clothes.....
My wife travels all over the country and wants a nice car for herself. She's paying for it.
rfoster said:
It's not 3.25% flat rate - that's about 4.5% flat rate. I'm a introducer for BMW Finance BTW. I suspect they're looking at the computer screen which shows the base rate at 3.25%, not the rate sold to you.
APR is typically around double the flat rate on a hire purchase / PCP type deal - take into account document fees and the fact that you're paying a fixed amount of interest that doesn't reduce in line with the capital reduction (it's nice and complicated!)
Even if it's 4.25%, how on earth does a £12500 sum borrowed result in an interest charge over the period of £3200?!APR is typically around double the flat rate on a hire purchase / PCP type deal - take into account document fees and the fact that you're paying a fixed amount of interest that doesn't reduce in line with the capital reduction (it's nice and complicated!)
3200/12500 = 25.6% / 4 = 6.4%
I've read that the flat rate is applied twice to the balloon payment. Is that so?
crostonian said:
Why do these posts always get responses like this, really pees me off. The OP is asking a straight forward question just answer it. Oh and when has blowing £1000 on a number plate that would probably be worth about £200 been sound financial advice?
Yeah it's annoying isn't it.She's worked for 10 yrs to get qualified and chartered.
During that time she's seen me blow lots of cash on nice cars and racing. In the meantime she's put up with whatever car has fitted our joint needs.
f
k it, she's earnt it.Thanks for the input guys.
It's on a used Mini. 8 months old, so not on heavily subsidised finance.
Annoyingly (!) the same dealer has come back with a very competitive offer on a new M135i. The interest charge for the 4 yrs is the same as that of the Mini. GFV is higher (obv). APR is half that of the Mini. Monthly payment is £70 more for a car costing £10k more.
I have some thinking to do...
It's on a used Mini. 8 months old, so not on heavily subsidised finance.
Annoyingly (!) the same dealer has come back with a very competitive offer on a new M135i. The interest charge for the 4 yrs is the same as that of the Mini. GFV is higher (obv). APR is half that of the Mini. Monthly payment is £70 more for a car costing £10k more.
I have some thinking to do...
2.5pi said:
dapearson said:
Thanks for the input guys.
It's on a used Mini. 8 months old, so not on heavily subsidised finance.
Annoyingly (!) the same dealer has come back with a very competitive offer on a new M135i.
I have some thinking to do...
If it were I my thinking would be briefer than a brief thing wearing briefs ..It's on a used Mini. 8 months old, so not on heavily subsidised finance.
Annoyingly (!) the same dealer has come back with a very competitive offer on a new M135i.
I have some thinking to do...
Wife's car. She's paying. She prefers the mini. I prefer the M135i. Even if i offer to pay the difference, she's paying for "my" car.
Good grief. What a dilemma!
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.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.
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 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.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.
Even then, it's not a bad deal really. It's 20% off list price and only 8 months old.
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.
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.
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!
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