The monthly payments on Select will be lower because you are not repaying the £3k of capital.
Let us suppose that you borrow £10k over three years from a bank on an APR of 10%. The total interest payable will be about £1628 and the monthly payments will be £10,000+£1628 = £11628/36=£323. At the end you own the car and have no debt.
However, if you use Select with the same APR but with a GFMV of £3k the amount of capital outstanding at any time will be higher and as a result the total interest cost will be about £2036. The monthly repayments will be £7k of capital to be repaid over the term plus the interest ie £2036+£7,000 = £9036 or £251 per month. So although the total interest cost is higher the monthly payments are lower.
However, on the bank loan you have no debt at the end of 3 three years whereas with Select you need to pay a further £3k to own the car.
I hope this helps. |