[NFS]

Originally Posted by gIzzE

I would take the gamble, even if the interest went up .25% every quarter for the life of the loan you would still not be worse off with the variable, and that just isn't going to happen, if anything interest rates are falling at the moment.

Lombard offered me the option of a variable rate, but being a cautious soul I felt a little uncomfortable about it.

It may have been a better scenario than my current deal.

However, my real problem has been depreciation.

My final payment is pretty much going to be the cars trade in value after 4 years. However, during the first 3 years the trade in is always going to be less than the outstanding balance on the loan.

In contrast I bought my 530d used on straightforward HP and it depreciated nicely in line with the payments.

[gIzzE]

I always buy 3 month old, with 20-25% off list, no deposit and do it over 4 years with 40-45% residual, I always works out alright. But I always pay around 1.5-2% above base.

At the end of the day a car is always going to be worth around 40% at 4 years old, whether you paid list, 10% discount or 25% discount.
I could have bought the 320d for £29k with discount on new, £33k list, or £25k at 3 months old and 3k miles. Still going to be around £13k at 4 years old whatever you buy it for new.

[Art Man]

Originally Posted by gIzzE

Sorry, that is so wrong, it is not just a tool, it is a way of repaying the loan and the interest.


Just about every lending house including bank loans use a flat rate, and then put an APR equivalent in brackets, and it is not just a tool.
If you borrow £30k even in year 4 you are still paying interest on that £30k, whether it is front loaded or not this is not good.

Search google to see the differences.


To be fair though it is not flat rate vs apr that is the problem, it is how the fees and interest is put on to the loan that is the problem, front loaded loans are getting more and more common, so you need to ask you dealer how much you would owe if you wanted out after a month, if it is more than you borrowed walk away.

That is not what I said. A flat rate is a tool to calculate the total interest on a loan. It is a selling tool, which everyone understands and uses. APR is there because it is a legal requirement, but it is nearer to the internal rate a bank would use when it calculates the monthly interest rate, based upon the monthly outstanding balance. The interest total is the same.
What I don’t understand is what you mean by front loading loans?

[gIzzE]

A lot of flat rate loans front load all the charges onto the amount you have borrowed, in fact I think they all do, it is the only way you can really do it if you think about it.

A flat rate of say 12% (easy figure to work with as we have 12 months in a year) on £100k is £12k.
Now that is obviously divided by the amount of payments you have agreed on each year, and in the UK we tend to pay monthly, so it means there is £10k interest paid each year.

So to pay the £100k off over 5 years (60 months) you need to pay £1666.66 a month + the £1000 interest (remember it is a flat rate) giving a monthly repayment of £2666.66 a month.

So total amount paid is £160k, £60k of interest. Now obviously flat rate at 12% is going to happen, it is more like 6%, so based on that £100k over 5 years would be £130k repayed, £30k interest, which is about right at the moment.

But what they do is take the £100k add on the £30k of interest and that becomes the amount owed.
After 3 months you will have paid off £1666.66 + £500interest x 3 months = £6499.98, subtract that from the £130k owed which leaves you with £123,500.02 to pay to clear the debt.
By month 12 you will have paid off £31999.92 leaving a balance of £98000.08, so it takes 12 months to break even.

A flat rate means you are paying interest on the £100k even at month 60. So it has to be front loaded with a discount applied when you settle early, if there is a dicount at all, with alot of lending there isn't, so be careful.

[gIzzE]

The thing to remember a flate rate is only the rate you are offered if you see the whole term out, as soon as you want out early that rate is completely different.

[NFS]

Originally Posted by gIzzE

But what they do is take the £100k add on the £30k of interest and that becomes the amount owed.

After 3 months you will have paid off £1666.66 + £500interest x 3 months = £6499.98, subtract that from the £130k owed which leaves you with £123,500.02 to pay to clear the debt.

By month 12 you will have paid off £31999.92 leaving a balance of £98000.08, so it takes 12 months to break even.

A flat rate means you are paying interest on the £100k even at month 60. So it has to be front loaded with a discount applied when you settle early, if there is a dicount at all, with alot of lending there isn't, so be careful.

This is about terminology I think.

So far as I understand it APR and flat rate are simply different ways of expressing the interest rate. For any loan, both can be quoted and understood.

With ALL conventional loans, as soon as you take them out you are liable for the amount borrowed, plus the total interest.

Most lendors recognise that people may wish to pay the loan back early. So they have 'early settlement' policies that offer a discount on the total interest depending on the time of settlement.

With regulated loans the lendor has to give an example of those discounts, with unregulated loans he doesn't - unless you ask.

So with the majority of loans the settlement figure is calculated as follows:

Amount Borrowed + (discount x total interest) - Total Paid to Date = Settlement

What you are pointing out is that some lenders offer an alternative to this as a 'balanced payment' loan.

In this instance the settlement after 'Y' months would simply be:

Amount borrowed + (Y x Monthly interest) - Amount Paid to date = Settlement

[gIzzE]

Not really. They are both completely different.

Flat rate is exactly that, a flat percentage per annum on the amount borrowed, so if you borrow £10k with a flat rate of 10% you pay 10% of £10k per year, if your loan is over 2 years you pay £2k interest, if it is over 3 years £3k, 10 years £10k. So even on year 9 when you have paid most of it off you are still paying interest on the whole £10k, hence the term 'flat rate'.


APR is the only way you can compare loans between lenders.
APR has to include any charges in the percentage rate, so although you could be borrowing at in interest rate of 6%, any fees have to be included in the APR rate, which is why it can go up to 6.5% APR.

APR is calculated based on how much of the loan is remaining, and because of this you know where you stand each month because you get an invoice telling you, and you can easily work out what is owing.


Here is a good website explaining APR.

http://www.teamtechnology.co.uk/loan...r-example.html

[NFS]

Originally Posted by gIzzE

Not really. They are both completely different.

Flat rate is exactly that, a flat percentage per annum on the amount borrowed, so if you borrow £10k with a flat rate of 10% you pay 10% of £10k per year, if your loan is over 2 years you pay £2k interest, if it is over 3 years £3k, 10 years £10k. So even on year 9 when you have paid most of it off you are still paying interest on the whole £10k, hence the term 'flat rate'.


APR is the only way you can compare loans between lenders.
APR has to include any charges in the percentage rate, so although you could be borrowing at in interest rate of 6%, any fees have to be included in the APR rate, which is why it can go up to 6.5% APR.

APR is calculated based on how much of the loan is remaining, and because of this you know where you stand each month because you get an invoice telling you, and you can easily work out what is owing.


Here is a good website explaining APR.

http://www.teamtechnology.co.uk/loan...r-example.html

I didn't say that APR and Flat Rates were the same. Just that they were different ways of expressing the interest rate.

An APR is just a particular method of expressing the interest rate of a loan. If you had all the information you could work out the equivalent flat rate for a given APR or vice versa.

Surely?

http://www.easypeasy.com/guides/article.php?article=253

[gIzzE]

Originally Posted by needforspeed

If you had all the information you could work out the equivalent flat rate for a given APR or vice versa.

Sorry I meant 'not really' to them being different terminology.



You can work out what the flat rate equivalent is at any time of an APR agreement, but you can only work out the apr equivalent once you have been given a settlement figure on a flat rate loan or if you see the whole term out I would guess?

[NFS]

Originally Posted by gIzzE

Sorry I meant 'not really' to them being different terminology.

You can work out what the flat rate equivalent is at any time of an APR agreement, but you can only work out the apr equivalent once you have been given a settlement figure on a flat rate loan or if you see the whole term out I would guess?

I am trying to ensure that my understanding (as follows) is correct:

1. The 'Flat Rate' or APR can be quoted for ANY loan.

2. There is no difference between a standard loan and one with 'balanced payments' if you run the full term. The difference comes with early settlement.

3. With both types of loan you sign up to pay a 'total amout' of interest over the term.

4. If you settle the standard loan early, the finance company will charge you the total interest - less a discount, which reduces as the loan period increases.

settlement = total borrowed + (total interest - discount) - amount paid to date

5. With the balanced payment loan each monthly payment includes an equal percentage of capital and interest. There should be no more interest to pay if you settle at any point.

settlement = total borrowed - total paid to date (excluding interest payments)

Have I got it right?

[tisme]

My recommendation is that you calculate the APR for the various options that you have, be it finance houses, banks for mortgages. You should also calculate the APR for various repayment options. Then clearly chose the options with the lowest APR. This is what I will do.

[gIzzE]

Originally Posted by needforspeed

I am trying to ensure that my understanding (as follows) is correct:

1. The 'Flat Rate' or APR can be quoted for ANY loan.

2. There is no difference between a standard loan and one with 'balanced payments' if you run the full term. The difference comes with early settlement.

3. With both types of loan you sign up to pay a 'total amout' of interest over the term.

4. If you settle the standard loan early, the finance company will charge you the total interest - less a discount, which reduces as the loan period increases.

settlement = total borrowed + (total interest - discount) - amount paid to date

5. With the balanced payment loan each monthly payment includes an equal percentage of capital and interest. There should be no more interest to pay if you settle at any point.

settlement = total borrowed - total paid to date (excluding interest payments)

Have I got it right?

I am obviously not explaining it all very well.


1) no.

2) no.

3) no.

4) on a flat rate loan yes.

On an apr loan such as a balanced payments plan you pay off the total you pay each month, so if your payment is £500, £500 is knocked off the loan. However, they will also calculate the interest on the remaining amount and add this back on, so if the interest on £30k for one month is £100 the next month your statement will be £500 less plus the £100 interest so you will have paid £400 off.

5) No. See point 4.

[Art Man]

Originally Posted by gIzzE

A lot of flat rate loans front load all the charges onto the amount you have borrowed, in fact I think they all do, it is the only way you can really do it if you think about it.

A flat rate of say 12% (easy figure to work with as we have 12 months in a year) on £100k is £12k.
Now that is obviously divided by the amount of payments you have agreed on each year, and in the UK we tend to pay monthly, so it means there is £10k interest paid each year.

So to pay the £100k off over 5 years (60 months) you need to pay £1666.66 a month + the £1000 interest (remember it is a flat rate) giving a monthly repayment of £2666.66 a month.

So total amount paid is £160k, £60k of interest. Now obviously flat rate at 12% is going to happen, it is more like 6%, so based on that £100k over 5 years would be £130k repayed, £30k interest, which is about right at the moment.

But what they do is take the £100k add on the £30k of interest and that becomes the amount owed.
After 3 months you will have paid off £1666.66 + £500interest x 3 months = £6499.98, subtract that from the £130k owed which leaves you with £123,500.02 to pay to clear the debt.
By month 12 you will have paid off £31999.92 leaving a balance of £98000.08, so it takes 12 months to break even.

A flat rate means you are paying interest on the £100k even at month 60. So it has to be front loaded with a discount applied when you settle early, if there is a dicount at all, with alot of lending there isn't, so be careful.

What you call “front loaded”, is known as the internal rate of return, which calculates the monthly interest on the outstanding balance each month. For instance, taking your £100k loan over 60 months at a flat rate of 6%, total interest charge of £30k and a monthly charge of £2,166.66. The internal rate of return would be 11.4% or 0.904% per month [(1 + 11.4%)^1/12 - 1]. So at the first payment, the calculation would be £100K + (£100K x 0.904%) - £2,166.66, giving a closing balance of £98,737.32. The second payment: £98,737.32 + (£98,737.32 x 0.904%) - £2,166.66 = £97,463.23, third payment’s closing balance = £96,177.63, fourth = £94,880.40 and so on until the final payment: £2147.25 + (£2,147.25 x 0.904%) - £2,166.66.
This calculation would form the bases for any early settlement figure. So for an unregulated loan, with a 2 month early settlement penalty charge, a settlement request in period 2 would be: £97,463.23 + £2,166.66 x 2 = £101,796.55. If the loan was regulated, the lender can defer the settlement calculation by two months, so the figure would be: £94,880.40 + £2,166.66 x 2 = £99,213.72.
Finally, in this example, the 11.4% is also the APR.

[NFS]

Originally Posted by gIzzE

I am obviously not explaining it all very well.


1) no.

2) no.

3) no.

4) on a flat rate loan yes.

On an apr loan such as a balanced payments plan you pay off the total you pay each month, so if your payment is £500, £500 is knocked off the loan. However, they will also calculate the interest on the remaining amount and add this back on, so if the interest on £30k for one month is £100 the next month your statement will be £500 less plus the £100 interest so you will have paid £400 off.

5) No. See point 4.

Either you aren't explaining it or I am not getting it.

This is what I am struggling with .. you seem to be saying that an 'APR loan' is a different financial vehicle to a 'flat rate loan'. Are you sure this is the case?

I thought 'Flat Rate' and 'APR' were just different ways of expressing interest. However, you seem to be saying that 'Flat Rate' = 'Balanced Payments'.

I really don't think this is the case, because I was quoted flat rates and APR's by BMW and Lombard when I bought my car and neither of the offers were based on balanced payments.

I know you have a lot of experience with this gIzzE ... I'm just trying to improve my understanding.

BTW - I now realise that I should have looked into a 'Balanced Payments' option when I bought my car.

[NFS]

Originally Posted by Art Man

What you call “front loaded”, is known as the internal rate of return, which calculates the monthly interest on the outstanding balance each month. For instance, taking your £100k loan over 60 months at a flat rate of 6%, total interest charge of £30k and a monthly charge of £2,166.66. The internal rate of return would be 11.4% or 0.904% per month [(1 + 11.4%)^1/12 - 1]. So at the first payment, the calculation would be £100K + (£100K x 0.904%) - £2,166.66, giving a closing balance of £98,737.32. The second payment: £98,737.32 + (£98,737.32 x 0.904%) - £2,166.66 = £97,463.23, third payment’s closing balance = £96,177.63, fourth = £94,880.40 and so on until the final payment: £2147.25 + (£2,147.25 x 0.904%) - £2,166.66.
This calculation would form the bases for any early settlement figure. So for an unregulated loan, with a 2 month early settlement penalty charge, a settlement request in period 2 would be: £97,463.23 + £2,166.66 x 2 = £101,796.55. If the loan was regulated, the lender can defer the settlement calculation by two months, so the figure would be: £94,880.40 + £2,166.66 x 2 = £99,213.72.
Finally, in this example, the 11.4% is also the APR.

This makes complete sense to me Art Man, which is why I think the comments that 'BMW front load the interest' are a little unfair. This is just how interest works.

What gIzzE has also been talking about are 'balanced payment' loans, where the total interest - which would still be calculated as you have described - is divided by the number of payments and applied evenly each month.

So the amount of interest is 'flattened' throughout the loan period, which would make the 'flat rate' for the loan more obvious than the 'APR' - right?

With balanced payments, you would only be liable for the interest you had actually paid, plus an early settlement charge. This would make it cheaper to exit the loan early, but in theory the lendor would be losing out, so they would probably want a slightly higher interest rate to compensate.

Have I got this right?

[Art Man]

Originally Posted by needforspeed

What gIzzE has also been talking about are 'balanced payment' loans, where the total interest - which would still be calculated as you have described - is divided by the number of payments and applied evenly each month.

Not sure if I understood you correctly. Do you mean the monthly payment is a calculation of the balance outstanding, current interest rate and the number of period left? So in our example, at the end of period 2 £97,463 is outstanding, with an interest rate is 11.4%, over 58 months, the total due is £125,666, which of course is £2,166 per month. But if the rate was increase to 13%, then the total due becomes £129,727 and the monthly payments would be £2,237 or thereabouts.

[NFS]

Originally Posted by Art Man

Not sure if I understood you correctly. Do you mean the monthly payment is a calculation of the balance outstanding, current interest rate and the number of period left? So in our example, at the end of period 2 £97,463 is outstanding, with an interest rate is 11.4%, over 58 months, the total due is £125,666, which of course is £2,166 per month. But if the rate was increase to 13%, then the total due becomes £129,727 and the monthly payments would be £2,237 or thereabouts.

I'm still trying to understand exactly how 'balanced payments' would work. My impression from gIzzE's posts was that it would be like this.

Assume you borrow £30K over 48 months with total interest charges of £6K

With 'Balanced Payments' every monthly payment would consist of the following:

£625 Capital + £125 Interest = £750 Total

So if you ended the loan after 12 months the settlement figure would be:

£30,000 - (12*625) = £22,500

And over 12 month period you would pay a total of:

£22,500 + (12*£750) = £31,500

In contrast with a typical loan from BMW finance the settlement would be:

30,000 + (45% * £6000) - (12 * £750) = £23,700

And over 12 month period you would pay a total of:

£23,700 + (12*£750) = £32,700

EDIT: I just worked out the early settlement using the 'rule of 78'

For a 48 month loan if you add up all the numbers from 1 to 48 you get 1178.

in month 1 you will pay (48/1178*total interest)
in month 2 you will pay (47/1178*total interest) etc..

If the total interest is £6000 after 12 months you will have paid £2602 in interest - roughly 44% of the total. So for the example loan the settlement figure looks like this:

£30,000 (borrowed) + £2602 (interest) - £9000 (total paid)

With balanced payments (if I have it right) the interest would just be £1500 (i.e. 12*125)

[Art Man]

Originally Posted by needforspeed

I'm still trying to understand exactly how 'balanced payments' would work. My impression from gIzzE's posts was that it would be like this.

Assume you borrow £30K over 48 months with total interest charges of £6K

With 'Balanced Payments' every monthly payment would consist of the following:

£625 Capital

£125 Interest

£750 Total

So if you ended the loan after 12 months the settlement figure would be:

£30,000 - (12*625) = £22,500

So over the 12 month period you would pay a total of:

£22,500 + (12*£750) = £31,500

I wouldn’t think this is what is meant. I would have thought it would have looked similar to the £100K example, where each month you there is a little less interest charged and a little more capital paid off. So the balance at the end of period 12 would be £23,501.86.

In contrast with a typical loan from BMW finance the settlement would be:

30,000 + (45% * £6000) - (12 * £750) = £23,700

So over the 12 month period you would pay a total of:

£23,700 + (12*£750) = £32,700

EDIT: I just worked out the early settlement using the 'rule of 78'

For a 48 month loan if you add up all the numbers from 1 to 48 you get 1178.

So

in month 1 you will pay (48/1178*total interest)
in month 2 you will pay (47/1178*total interest)

and so on.

If the total interest is £6000 after 12 months you will have paid £2602 in interest - roughly 44% of the total.

BMW obviously use this when calculating their early settlements. So for the example loan the settlement figure looks like this:

£30,000 (borrowed) + £2602 (interest) - £9000 (total paid)

With balanced payments (if I have it right) the interest would just be £1500 (i.e. 12*125)

The actual figure is £2,502 (the same as the balancing figure, because you are using the same principals in its calculation). The £100 difference reflects the overstatement Rule of 78 is accused off.

[gIzzE]

Sorry, this is all getting too confusing for me!


Balanced lease purchase is just like a mortgage, you pay the interest based on amount remaining. So at the start of the term you are paying more interest than at the end.

Flat rate means you pay the same amount of interest each month whether at the start or at the end of the term. Hence the name, flat rate.


Not all BMW deals are flat rate or front loaded, you have....

BMW Select - renting with an option to buy at the end, or use the equity to put towards a new car. Front loaded with a discount for ending early, a few people have been burnt using this when wanting out early as the discount was not what they thought it would be.

BMW Hire Purchase - Simply a loan where you agree a rate and a term and pay it off. Not sure what the deal is if you want to end it early, anyone know?

BMW Lease Purchase - This is a balanced lease purchase, same as above but you can also have a balloon which is worked out from the estimated value of the car at the end of the chosen term. Not front loaded.

BMW Contract Hire - Simple rental, agree on car, mileage an term and pay them a rent, hand it back at the end. Be careful, to get out you still have to pay all the rentals for the full term. You may get them to give you a discount if they have someone else who will take the vehicle.

[AlanQS]

My bank has done a beezer. By law in a personal loan they have to show at least three early re-payment balances. They also have to state the total amount of the loan including the interest. On a five year loan they show early repayments at 15 months, 30 months, and 45 months.
At 15 months they take about 60% of the full amount of interest. At half way, 30 months, only 12% of the total interest is refunded and at 45 months - which is one and a quarter years early, not only do they keep all of the interest, they charge you £200 more. WTF! They need their masks that's for sure.

[NFS]

Originally Posted by gIzzE

Flat rate means you pay the same amount of interest each month whether at the start or at the end of the term. Hence the name, flat rate.

I don't think this is quite correct. BMW quote flat rates and APR's for loans where interest is calculated monthly as do Lombard.

They are just expressions of the same thing calculated with different rules.

Assume you borrow £1000 over 12 months at a Flat Rate of 5%.

All this means is that, on average, you pay (1000*0.05)/12 interest per month, which equates to £50 over the full year.

The APR for this loan (assuming there are no charges) is about 9.2%

Using the rule of 78 approximation for monthly interest calculations the interest charges would be split like this:

Month	%'age int	Monthly 
		Interest 
1	15.38%	£7.69
2	14.10%	£7.05
3	12.82%	£6.41
4	11.54%	£5.77
5	10.26%	£5.13
6	8.97%	£4.49
7	7.69%	£3.85
8	6.41%	£3.21
9	5.13%	£2.56
10	3.85%	£1.92
11	2.56%	£1.28
12	1.28%	£0.64

78	100.00%	£50.00

The interest is still £50. The flat rate of interest is still 5% and the APR is still 9.2%

What I have learned from you is that there are also options for 'balanced payments' where the interest is NOT calculated monthly, but instead is spread evenly throughout the term of the loan.

In this case you would pay £4.17 per month, so the flat rate is a particularly easy way to understand the interest costs of this sort of loan.

Balanced payments sounds like a great option if you don't want to see the loan through. I'm going to look into it further. However, my point is that a loan quoted with a 'flat rate' does not necessarily have balanced payments.

[booforty]

There's a lot of numbers in this post...