Finance - flat vs APR. Help needed.

Finance - flat vs APR. Help needed.

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Discussion

dapearson

Original Poster:

3,405 posts

167 months

Wednesday 22nd January 2014
quotequote all
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.

Slidingpillar

761 posts

79 months

Wednesday 22nd January 2014
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Can't be bothered to do the maths, but a flat rate loan's interest is charged on the whole sum borrowed, not the amount owed.

rfoster

1,461 posts

197 months

Wednesday 22nd January 2014
quotequote all
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!)

Ozzie Osmond

21,189 posts

189 months

Wednesday 22nd January 2014
quotequote all
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.....

dapearson

Original Poster:

3,405 posts

167 months

Wednesday 22nd January 2014
quotequote all
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 wife travels all over the country and wants a nice car for herself. She's paying for it.
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dapearson

Original Poster:

3,405 posts

167 months

Wednesday 22nd January 2014
quotequote all
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?!

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

2,427 posts

115 months

Wednesday 22nd January 2014
quotequote all
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.....
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?

dapearson

Original Poster:

3,405 posts

167 months

Wednesday 22nd January 2014
quotequote all
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.

fk it, she's earnt it.

Ozzie Osmond

21,189 posts

189 months

Wednesday 22nd January 2014
quotequote all
dapearson said:
fk it, she's earnt it.
If she's happy giving the bank 10% of her money each year for 4 years that's absolutely fine by me. I guess somebody has to keep the bankers in their fat salaries. biggrin

dapearson

Original Poster:

3,405 posts

167 months

Wednesday 22nd January 2014
quotequote all
Thank you for your input into this thread.

FFS

MrBig

1,212 posts

72 months

Wednesday 22nd January 2014
quotequote all
Ozzie Osmond said:
If she's happy giving the bank 10% of her money each year for 4 years that's absolutely fine by me. I guess somebody has to keep the bankers in their fat salaries. biggrin
Must be nice not having a mortgage. Suppose it gives you more time to answer questions that weren't asked in the first place.

jonny70

1,219 posts

101 months

Wednesday 22nd January 2014
quotequote all
dapearson said:
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.

.
Is the it a new bmw car or 2nd hand bmw? (also which model?)

I would of thought the the interest wis cheaper on a new one and the the cost of borrowing on a 2nd hand one is more expensive.(new is manufactured subsidised)

It maybe cheaper just o to get a personal loan (you only pay interest on the outstanding capital)

charltjr

3,574 posts

138 months

Wednesday 22nd January 2014
quotequote all
It's only an idea, but with personal loan interest rates the way they are now if your OH can stretch to another £100 a month you can have the loan completely paid off after four years and have paid £1720 in interest not £3k.

Even if you're constrained by the monthly repayments taking the loan out over seven years will still give you £180 a month repayments and save you money on interest (£2200ish interest over seven years, but if you pay it back after four you won't have to pay all the interest)

dapearson

Original Poster:

3,405 posts

167 months

Wednesday 22nd January 2014
quotequote all
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...

dapearson

Original Poster:

3,405 posts

167 months

Wednesday 22nd January 2014
quotequote all
olly22n said:
IME new minis are cheaper than second hand minis.
Yeah that's probably true. It certainly is for the BMWs.

fuzzymonkey

237 posts

168 months

Wednesday 22nd January 2014
quotequote all
olly22n said:
IME new minis are cheaper than second hand minis.
Wait a few months and they will be giving them away due to the new model coming out this year...

2.5pi

1,023 posts

125 months

Wednesday 22nd January 2014
quotequote all
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 ..smile

dapearson

Original Poster:

3,405 posts

167 months

Wednesday 22nd January 2014
quotequote all
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 ..smile
lol. There's more to this at stake though.

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!

Froomee

1,310 posts

112 months

Wednesday 22nd January 2014
quotequote all
£3200 interest on £12.5k over 48 months is a lot in my opinion.

If get a bank loan over 4 years and pay it off for an extra £100 a month or so or shorten the term to 24/36 months (the GMFV will increase) and negotiate a lower rate for borrowing smile

Maz_uk

590 posts

141 months

Wednesday 22nd January 2014
quotequote all
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.