[MiniOne07]

Hello, your input would be useful. Traditionally I've always thought that buying a car through a PCP is always the best option - thinking this through I'm now not so sure...

I purchased a new Mini One a few weeks ago and was offered 11.9 % APR PCP across 48 months with a balloon final payment of about £5400 on the car. Thankfully I'm not yet locked into that and am looking at other options.

The dealer says that the interest rates they offer are set by BMW and cannot be lowered therefore looking around I can get a loan with Northern rock at an interest rate of 6.2 % over 6 years which leads to lower monthly payments and less outstanding finance at 48 months.

There's no early settlement penalty with them so I would be free to sell the car after 48 months and use the difference between the finance and what I get for the car as the deposit on the next one. Obviously with the benefit of having paid less every month and having less finance to settle after 48 months. There is also no acceptance or option to purchase fee.

This got me thinking why does anyone take out PCPs? Do you think the Mini dealer is just being scrooge like and could offer me a better deal than 11.9 % ??

Just want to make sure I'm not missing a trick somewhere before I back out of the BMW finance and go with Northern rock.

[Zato]

BMW have offered me 4.1 % fixed for three years on 25k finance rather than PCP. Not to shabby when I can now invest the 25k at 6.1% net.

[Martin L]

PCP is the worst deal EVER.
Every time I buy a new car they give me the spiel and I think that sounds good.
I then go home and do the maths and find out it's so much better to get a loan for the whole amount. For a couple of grand more loan you actually get to own the car outright at the end rather then paying some huge final payment.

BMW were actually really good for a loan for this new MINI I've just got. I was going to get 5.6% from Barclays, but MINI said they couldn't match that and could only get 6.9%, so they discounted the car to make up the variance. When i actually went to sign the documents earlier last week they said their interest rates had dropped so they gave me the better rate and didn't adjust the discoun, so now I'm around another £150 better off

[Hat]

Quote: Originally Posted by Zato (original)

BMW have offered me 4.1 % fixed for three years on 25k finance rather than PCP. Not to shabby when I can now invest the 25k at 6.1% net.

thats an excellent rate - might have to quote that back to them

PCPs are not a good deal - they're the most expensive way to buy a car. luckily the mini has had excellent residual value up to now which has made them easier to manage but they're always a gamble. i'd steer well clear & look at other options

[Martin F]

Quote: Originally Posted by Zato (original)

BMW have offered me 4.1 % fixed for three years on 25k finance rather than PCP. Not to shabby when I can now invest the 25k at 6.1% net.

Are you sure that 4.1% is the APR and not a "flat rate" which will be about half the true cost?

[3rdpillar]

The BMW dealerships i talked toto were talking about FLAT rates so beware!

[SteveBrass]

Quote: Originally Posted by Zato (original)

BMW have offered me 4.1 % fixed for three years on 25k finance rather than PCP. Not to shabby when I can now invest the 25k at 6.1% net.

is that 4.1% flat or apr?

and as a matter of interest, where can you get 6.1% net?

[Scrogg]

Quote: Originally Posted by Martin F (original)

Are you sure that 4.1% is the APR and not a "flat rate" which will be about half the true cost?

The Flat Rate is the true cost, as it relates directly to the Base Rate, and tells you exactly how much interest you are paying.

To date, I have never met anyone who can successfully calculate an APR, or explain how it relates to how much interest you are being charged, but as a nation we are nonetheless obsessed with it, even if we don't actually know what it really means.

But anyway, going back to the actual topic of the thread, PCPs were originally created by Ford Credit in the 1970s (and since copied by all the manufacturer's finance divisions) as a way of offering customers a shorter-term way of buying a new car.

As car prices increased customers were needing to borrow more and more money to pay for them. The only way to keep payments at an affordable level was to increase the term of the loan to 3, then 4, then 5 years.

Obviously a car manufacturer doesn't want you to keep your car this long, as they want you to come back and buy another after 1, 2 or 3 years.

The idea of guaranteeing that the car will be worth the final payment is attractive in an uncertain world, as it means buyers will never be in a situation where they owe more than the car is worth at the end of the term.

However, as MiniOne07 has already said, a longer-term unsecured personal loan is cheaper, and there is less owing on a 72 month loan after 48 months than the final payment on a 48 month PCP.

But what if the bottom falls out of the used car market and the car isn't worth what is outstanding? You'll still have to settle the loan in full.

Just for the record, MINI Financial Services don't offer 48 month PCPs (their longest is 36 months) so the figures you have been quoted are for a Lease Purchase agreement. This works in the same way as a PCP but the final payment isn't a guaranteed value, so you could be in the same position as with a personal loan after 4 years.

[SteveBrass]

The point of the APR is that is reflects the true rate of interest you are paying on a loan.

The flat rate lets you work out how much interest in total you will pay, but the flat rate asumes that all of the loan is outstanding until the last day of the period.

In reality, your monthly payments will be a mixture of capital and interest, so the amount outstanding on the loan is going down from the first payment. The APR calculation reflects this.

Although not perfect, you need to be aware of this rate to make better informed choices.In the example in this thread, If I had £20,000 in the bank and could

invest at 6.1% tax free or

borrow at an APR of 4.1% I would borrow.

Being an accountant and generally bright chappie this is all crystal clear to me.

I therefore recommend that either

a you all become acountants or

b you pay me shed loads of money to advise you.

[Scrogg]

Quote: Originally Posted by SteveBrass (original)

The point of the APR is that is reflects the true rate of interest you are paying on a loan.

I tried so hard to steer this thread away from this, but seem to have failed miserably so, go on then, how?

Assume borrowing £10k over 5 years at 7.9% APR. How much interest will I pay?

[Martin L]

Quote: Originally Posted by SteveBrass (original)

The point of the APR is that is reflects the true rate of interest you are paying on a loan.

The flat rate lets you work out how much interest in total you will pay, but the flat rate asumes that all of the loan is outstanding until the last day of the period.

In reality, your monthly payments will be a mixture of capital and interest, so the amount outstanding on the loan is going down from the first payment. The APR calculation reflects this.

Although not perfect, you need to be aware of this rate to make better informed choices.In the example in this thread, If I had £20,000 in the bank and could

invest at 6.1% tax free or

borrow at an APR of 4.1% I would borrow.

Being an accountant and generally bright chappie this is all crystal clear to me.

I therefore recommend that either

a you all become acountants or

b you pay me shed loads of money to advise you.

PMSL

As an accountant myself I was thinking up of an answer, but you've come up with a great one.

[SteveBrass]

Quote: Originally Posted by Scrogg (original)

I tried so hard to steer this thread away from this, but seem to have failed miserably so, go on then, how?

Assume borrowing £10k over 5 years at 7.9% APR. How much interest will I pay?

You don't have to (as a consumer). The credit offer and agreement should give you this.

But as a matter of interest about £2137

[Scrogg]

Quote: Originally Posted by SteveBrass (original)

You don't have to (as a consumer). The credit offer and agreement should give you this.

Yes it does, but that isn't much use to anyone in the early stages of trying to find the best loan.

Quote: Originally Posted by SteveBrass (original)

But as a matter of interest about £2137

I meant per month, not overall, but thanks anyway. How did you calculate that?

I'm not trying to fall out with anyone here, so please don't think I'm looking to start a fight, but the point I am trying to make is that knowing the flat rate makes it far easier to work out a monthly payment than knowing the APR.

Looking at the same £10k over 5 years at 4% flat I know that I will pay 4% of the amount borrowed, for each year of the loan, so my payment will be 10,000 x (4% x 5) / 60 months.

So, £10,000 x 20% / 60 = £200.00 per month. A total interest charge of £2,000.00.

I defy anyone (apart from Steve and Martin, obviously! ) to show the same simple calculation just knowing the APR is 7.9%.

[SteveBrass]

My dear Scrogg, you are quite right that the flat rate calculation is the easiest way to get to monthly repayments, interest and so on.

To do the same with the apr you need a variety of look up tables, scientific calculator, excel and a cold towel - not always in that order.

The point I am trying to make is that if you want to compare borrowing with using your savings you need the apr because that is the rate you are effecively paying.

ps did you like my little pun "as a matter of interest (the interest is) about £2137?

[Martin F]

I agree that if the APR is 7.9% the interest is about £2137. But on Scrogg's calculation with a flat interest rate of 4% I reckon the APR is around 7.45%

[Scrogg]

I was only using 4% as an example, not as the equivalent flat rate of 7.9% APR, so sorry for any confusion.

I'm still dying to know how you guys arrived at that interest figure from the APR though? What is the calculation?

[SteveBrass]

Quote: Originally Posted by Scrogg (original)

I was only using 4% as an example, not as the equivalent flat rate of 7.9% APR, so sorry for any confusion.

I'm still dying to know how you guys arrived at that interest figure from the APR though? What is the calculation?

we accountants have our dark secrets!

easiest way is to use the pmt function in excel

[Martin L]

Quote: Originally Posted by Scrogg (original)

I was only using 4% as an example, not as the equivalent flat rate of 7.9% APR, so sorry for any confusion.

I'm still dying to know how you guys arrived at that interest figure from the APR though? What is the calculation?

The calculation is far from simple, as the interest and capital reduce each month. Do a search on google
If we gave away our secrets everybody would become an accountant!

[thecoopertrooper]

aaaahhh accountants to question

I use this online apr calculatory thing to work out how much im being screwed :

Loan Calculator

Also, I have just been offered a 12k loan from a car garage at a supposed rate of 5%apr, however when I check about a loan from my bank at 6.9% it will be about £16 cheaper a month! they are obviously trying to screw me somewhere!

when calculating APR's, do you need data like current interest rates to work it out?

[Martin F]

I just did a quick spread sheet. I filled in about 6 cells. Copied them into some columns and let it do the sums for me. About 5 mins work. But all done from first principles just to check I can do it and so that I believe the result.

And thecoopertrooper the only figures you need are the initial amount borrowed, the closing balance, the term and the interest rate to get the monthly payments. If 4 numbers are known you can derive the fifth one. Current interest rates are not needed for the calculation.